The Trump administration’s announcement today that it is moving to revoke the individual investor protections is bad news for unsophisticated, individual investors who are having a hard time saving for retirement and making higher return investments.
Today’s announcement is the culmination of hundreds of millions of dollars spent on lobbying by key elements of the financial industry that have been promoting legislative, regulatory and legal campaigns designed to denigrate any benefits to customer-investors. This includes a decades-long powerful campaign by well-financed financial trade groups, using weak and false arguments about the burden of regulation, higher compliance expenses and making financial advice inaccessible to low-income clients, to derail any pro-investor actions from the U.S. Department of Labor or any other agency at the state and federal levels.
…the financial services and global banking industry are broken and have an inbred, institutionalized distain for their own customers.
What’s more, these recent actions are not isolated. They are part of the ongoing campaign to ignore any admission that the financial services and global banking industry are broken and have an inbred, institutionalized distain for their own customers.
Trump-Proof Your 401(k) by Asking These Questions To Your Advisor and Employer
As noted in the pro-investor book, How 4019(k) Fees Destroy Wealth and What Investors Can Do To Protect Themselves, So with that in mind, here is a simple check list of things to ask for and see when dealing with advisors to make sure they understand that you now that new DOL fiduciary regulations are in the pipeline.
- Learn to identify conflicts-of-interest in financial relationships, including those affecting your 401(k) at work;
- Remember that managing fees and expenses are the most important factors under an investor’s direct control. They must be managed for long-term financial success;
- Follow the “one-strike and you’re out rule” when it comes to dealing with your financial advisor. Financial mistakes are too expensive for all investors and for retirees they represent money that can never be recovered. If your advisor loses money by investing in inappropriate funds, fire them.
- Ask your financial advisor if they adhere to the fiduciary standard. Ask them what it means to them, and then, have them put that claim in writing.
- Ask your advisor if their firm or the funds in your portfolio are managed by global banks, wirehouse, or insurance companies, such as AG Edwards, Edward Jones, JPMorgan Chase, Principal Financial, Bank of America, Merrill, CitiBank, Oppenheimer, Principal, Hancock, etc., that contribute to lobby against the fiduciary standard. If they do, look for another firm or work with a Registered Investment Advisor (RIA) who explicitly says they adhere to the fiduciary standard. Don’t even consider investing with a firm that uses your own money to generate fees and revenues that are then diverted to lobbyists working against your best interests.
- Don’t invest in fund companies that employ mutual fund wholesalers. Wholesalers are used in a national sales force and are among the most highly-paid jobs in the mutual fund industry, with an average salary of $165,000, according to Simply Hired. Wholesaler expenses are used to increase assets under management, but do nothing to boost the return on your mutual funds. On the contrary, they often decrease returns. Wholesalers only add to your expense ratio; they do not add one penny to your total net return.
- Ask your advisor when your mutual fund last reduced its fees. Funds that grow in asset size reach a more efficient scale of economy and are cheaper to manage, especially with the decreasing costs of technology. If your fund is growing in assets and has not made a corresponding decrease in their total expense ratio, ask why those savings are not being passed along to shareholders.
- When meeting with your financial advisor or human resources person at work to discuss your 401(k), don’t be afraid to record the conversation and to take notes.
These may be tough questions, but the reality is no one will be more concerned about your money than you. Take the needed steps to protect it. If not, you have no one to blame but yourself.
A Once-in-a-Lifetime Marketing Opportunity for RIAs
While the Trump administration is unequivocally bad news for individual investors, it presents a unique opportunity for Registered Investment Advisors (RIAs) and others who support plain-old disclosure and transparency with their clients. If you are a financial professional who believes in fair playa and full disclosure, market yourself as being on the same side as your clients. Make yourself distinct from the big banks, insurance companies and wirehouses that push proprietary funds and conflicts-of-interest. In this case, good marketing is good education, but you have to make yourself distinct.
Who Speaks For Individual Investors?
Since the financial services industry lobby is the largest and richest in Washington, it should not be surprising that Trump’s actions continue to tilt the field against individual investors. The problem is that this is a near-permanent situation.
Sadly, few in Congress and few lobbying groups advocate for investors, so any temporary gains, such as the DOL’s historic pro-investor 401(k) disclosure regulations, and even Dodd-Frank and the Volker Rule, could be considered temporary, pro-investor aberrations. As things stand today, the financial services industry lobby has targeted all of these regulations because they interfere with the ability of advisors to make easy money and for the large firms to avoid expensive class action lawsuits. That is why these pro-investor rules are reviled in Washington: they are simply pro-individual investor. Revoking these protections means average people will have less money in retirement, while their advisors will have more.
But things should get worse. Under Trump, the SEC will become a captive, defanged, rubber stamp regulatory agency. It will effectively disappear and will move at an intentionally slow pace, so critics would die of boredom as it slogs through it regulatory minutia. The DOL will also be hampered. And even state financial regulators (yes, they do exist) will continue to be ineffective against the financial services industry. Yet from its muck, many SEC staffers will continue to collect their salaries and emerged clean and into the better-paying private sector jobs as lobbyists and securities attorneys.
This is part of the price investors pay for what is touted as investing in one of the most highly-regulated financial markets in the world.
The big question is: Who benefits from the regulations? It certainly is not the individual investor.
And for those who think this is a one-off event from the Trump administration, it’s clear more bad actions that threaten the retirement security of Americans are on the horizon.