Friday, March 04, 2016

The Frugal Planner's Weekly Dispatch: The Fiduciary Rule -- from Bloomingdale resident and Certified Financial Planner Chuck Donalies


From: Chuck Donalies, CFP® [mailto:chuck=frugalplanner.com@mail75.atl51.rsgsv.net] On Behalf Of Chuck Donalies, CFP®
Sent: Friday, March 4, 2016 9:01 AM
Subject: The Frugal Planner's Weekly Dispatch: The Fiduciary Rule



The Frugal Planner's Weekly Dispatch

The Issue Where Chuck Gets Upset

Volume 2, Issue 10
March 4, 2016


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Chuck, AKA Severus Snape (Halloween 2015), is not amused by false claims made by elected officials who should know better.


Gettin' Upset

Like George Constanza, Chuck is gettin' upset.*

Why? Because of comments made by House Speaker Paul Ryan and personal finance guru Dave Ramsey. They're criticizing the Department of Labor's forthcoming rule to change the definition of fiduciary on retirement advice.

And their arguments against the rule are ridiculous.


I know your eyes started to glaze over as soon as you saw the word "fiduciary". Stay with me, because this is an important issue for consumers.

*Yes, Mike Bento, I am continuing with the rant I started last week on Facebook.

The Current Suitability Rule

Currently, brokers and advisors only have to comply with a "suitability standard" when providing recommendations to consumers. This means brokers and advisors must make recommendations that are suitable to an individual's investment needs, but they can also consider their own and their firms' interests.

The suitability rule creates a conflict of interest for brokers and advisors who are compensated by commissions earned when they sell certain types of investment products. The investment only has to be suitable for the consumer, not necessarily one that's best for the consumer.

The Solution

The Department of Labor has proposed changing the definition of fiduciary in order to resolve the inherent conflict of interest created by the current suitability rule. If the new fiduciary rule goes into effect, and it should, it will require brokers and advisors to act in their clients' best interest.

That's a win for consumers.

The Opposition

Financial services companies, House Speaker Paul Ryan, and personal finance guru Dave Ramsey have come out against the fiduciary rule. They claim the revised fiduciary definition will prevent seven million people from getting quality investment advice.

What. A. Joke.

You know what the new fiduciary rule will prevent? It will prevent brokers and advisors from earning commissions off of expensive, poorly performing investments they've sold to consumers.

Follow the Money

I wanted to find out if Paul Ryan's opinion on the fiduciary rule could have been affected by donations made to his campaigns. A few minutes at OpenSecrets.org turned up the following information:

From 2012 - 2016, which industries contributed the most money to Paul Ryan? Second place goes to Securities and Investments while third place goes to Insurance.

Who were the top contributors in these industries?
  • Bank of America
  • Blackrock, Inc.
  • Citigroup, inc.
  • Credit Suisse Group
  • JP Morgan Chase & Co.
  • Goldman Sachs
  • Northwestern Mutual
  • Wells Fargo
  • UBS
As you can see, Paul Ryan has received serious funding from the financial services industry. That means he's (a) ignorant about the issue, (b) lying, or (c) corrupt. Regardless of which option is true, the evidence suggests a major conflict of interest.

Who Do You Want Working For You?

Do you want a "planner" who only has to recommend an investment that's suitable for you (not in your best interest) or a planner who has a fiduciary responsibility to act in your best interest?

The fact is the seven million consumers Paul Ryan and friends pretend to be concerned about have options. Good options. Consumers don't need to buy expensive investment products from brokers who don't want to act in their clients' best interest. Consumers can already get high-quality, affordable financial advice from hundreds of fee-only planners - who are fiduciaries!


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