I'll be at the Studio City branch of the LA Public Library on Monday, November 13 at 1830hPT to launch my new novel, The Lost Cause. There'll be a reading, a talk, a surprise guest (!!) and a signing, with books on sale. Tell your friends! Come on down!
Once, American workers had "defined benefits pensions," where their employers promised to pay them a certain amount every year from their retirement to their death. Jimmy Carter swapped that out for 401(k)s, "market" pensions where you have to guess which stocks will be valuable or starve in your old age:
The initial 401(k) rollout had all kinds of pot-sweeteners that made them seem like a good deal, like heavy employer matching that doubled or even tripled the value of every dollar you put into the market for your retirement. But over the years, as Reaganomics took hold and workers' power ebbed away, all these goodies were clawed back. In the end, the market-based pension makes you the sucker at the poker table, flushing your savings into a rigged casino that is firmly tilted in favor of finance barons and other eminently guillotineable plutocrats.
Neoliberalism is many things, but most of all it is a cult of individualism. The fact that three generations of workers are nows facing down retirement without pensions that will provide them with secure housing and food – let alone money to see the odd movie, buy birthday gifts for their grandkids, or enjoy a meal out now and then – is framed as millions of individual failures, not a systemic one.
In other words, if you are facing food insecurity and homelessness after a lifetime of hard work, it's because you saved wrong. Perhaps you didn't save enough (through a 40-year run of wage stagnation and skyrocketing housing, health and education costs). Or perhaps you saved wrong, making the wrong bets on the stock market. If you can't afford to run your air conditioner during a heat dome, that's on you: you should have been better at stocks.
Apologists for this system will say that you don't have to be good at stocks – you just have to pay an Independent Financial Advisor to pick the stocks for you and you'll be fine. But IFAs don't work for free! What if you can't afford one?
Enter "predatory inclusion" – the practice of offering scammy, overpriced and substandard products to poor people and declaring it to be a good deed, because otherwise, those poor people would have to do without. The crypto bubble relied heavily on this: think of Spike Lee and others shilling for pump-and-dump scams as a way of "building Black wealth":
More recently, Intuit and other scammy tax-prep services have argued against the IRS's plan to offer free tax preparation as bad for Black and brown people, because it will deny them the chance to be deceived and ripped off with TurboTax:
Back in 2018, Trump won the predatory inclusion Olympics, when his Department of Labor let the Fifth Circuit abolish the "Fiduciary Rule" for Independent Financial Advisors:
What was the Fiduciary Rule? It said that your IFN had to put your interests ahead of their own. Like, if there were two different funds you could bet on, and one would pay your IFN a big commission, while the other would be a better bet for you, the IFN couldn't put your retirement savings into the fund that offered them a bribe.
When Trump killed the Fiduciary Rule, he proclaimed it a victory for poor people, especially Black and brown people. After all, if IFNs weren't allowed to accept bribes for giving you bad financial advice, then they would have to make up the difference by charging you for good advice. If you couldn't afford that advice, well, you'd have to make bad retirement investments on your own, without the benefit of their sleazy self-dealing.
The Biden Administration wants to change that. Biden's Acting Labor Secretary is Julie Su, and she's very good at her job. Last spring, she forced west coast dockworkers' bosses to cough up the contract they'd stalled on for a year, with 8-10% raises for every worker, owed retroactively:
Su has proposed a way to reinstate the Fiduciary Rule, as part of the Biden Administration's war on junk fees, estimating that this will increase retirees' net savings by 20%:
The new rule will force advisors who cheat their clients to pay restitution, and will require them to deliver all their advice in writing so that this cheating can be detected and punished.
The industry is furious, of course. They claim that "The Market (TM)" will solve this: if you get bad retirement savings advice and end up homeless and starving, then you will choose a different advisor in your next life, after you are reincarnated (I guess?).
And of course, they're also claiming that forcing IFNs to stop cheating their clients will deny poor people access to expert (bad) advice. As the Financial Services Institute's Dale Brown says, this will have a "negative impact on Main Street Americans’ access to financial advice":
Here's that rule – read it for yourself, then submit a comment expressing your views on it. The government wants to hear from you, and administrative law requires them to act on the comments they receive:
Su is part of a wave of progressive, technically skilled regulators in the Biden administration that resulted from a horse-trading exercise called the Unity Task Force, which divvied up access to top appointments among the progressive wing and the finance wing of the Democratic Party. The progressive appointments are nothing short of incredible – the most competent and principled agency leaders America has seen in half a century:
But then there's the finance wing's appointments, like Judge Jacqueline Scott Corley, who ruled against Lina Khan's attempt to block the rotten Microsoft/Activision merger (don't worry, Khan's appealing):
Perhaps the worst, though, is Biden's Secretary of Commerce Gina Raimondo, a private equity ghoul who did a stint for the notorious wreckers Bain Capital before founding her own firm. Raimondo has stuffed her department full of Goldman Sachs alums, and has sidelined labor and civil society groups as she sets out to administer everything from the CHIPS Act to regulating ChatGPT.
As Henry Burke writes for the Revolving Door Project and The American Prospect, Raimondo's history as a corporate raider, her deference to the finance sector, and she and her husband's conflicts of interest from their massive stakes in companies she's regulating all serve to undermine Biden's agenda:
When the administration inevitably complains that its popular economic programs aren’t breaking through the media coverage, they’ll have no one to blame but themselves.
The Unity Task Force gave us generationally important policymakers, but ultimately, it's a classic "pizzaburger." If half your family wants pizza, and the other half wants burgers, and you serve them something halfway in between that makes none of them happy, you haven't made a wise compromise – you've just made an inedible mess:
https://pluralistic.net/2023/06/17/pizzaburgers/
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
Trump signs executive order that could make it harder to get trustworthy financial advice
Trump signed an executive order Friday to delay, by 180 days, the implementation of the labor department's "fiduciary rule."
The fiduciary rule, which could potentially be rescinded altogether, was originally expected to go into effect in April.
It would legally require financial advisors to act in retirement savers' "best interest," including disclosing any conflicts of interest and being transparent about fees.
In other words, the rule would make advisors more like doctors, who are obligated to protect you. Read more
What has Donald Trump done for you lately? If you're a hardworking American, the answer is very little. Read about the many blessings #45 has bestowed upon us: Leave Donald Trump Alone! Part Dos
Part 2 of 3 of this series is titled: Leave Donald Trump Alone! Donald Trump has done great things for the average American. Our President fights tirelessly to keep us safe and protect our rights. Let’s take a look at the many ways in which our 45th president has succeeded in helping the everyday American.
Fiduciary Rule – Remember the recession, when several financial institutions involved in…
Now that the DOL Fiduciary rule has been defeated in court by the combined efforts of the broker/dealer and insurance industries, attention is focused on the SEC as they attempt to offer new rules related to how broker/dealers, Registered Investment Advisors, and their respective representatives interact with the investing public. Sadly, the SEC rule is anything but a fiduciary standard.
While the rule requires broker/dealer representatives to work in the best interest of their clients, it fails to subject them to a fiduciary standard, which offers significantly greater legal protection to the client. Instead, broker/dealers and their representatives will continue to be subject to the suitability standard.
Suitability Defined
The difference between a fiduciary standard and a suitability standard is vast. The fiduciary standard provides both a requirement for the advisor to act solely in the interests of the client and an opportunity for legal recourse should an advisor violate the standard and harm the client. The suitability standard, however, only requires the advisor to give advice which is suitable, even if the advice is not in the best interest of the client.
Suitability means an advisor can recommend an investment predominantly based upon how much the advisor is paid, so long as the investment is not bat-shit crazy. The suitability standard allows for investment advice which may clearly not be in the best interest of the client, but is still legal because there exists enough redeeming qualities to meet the extremely low bar of 'suitability.'
Suitability is also how insurance agents (who are under the same standard) can sell a high cost annuity contract to a 21-year old college student, with an additional cost of a long-term-care rider in case the 21-year old developed exceptionally early-onset alzheimer's disease.
Take Action
If you think this is a step in the wrong direction, you can read the proposed Best Interest Regulation on the SEC website and leave a comment for the SEC. The comment period ends August 7th. You can comment at https://www.sec.gov/rules/proposed.shtml. Look for Regulation Best Interest posted April 18, 2018. Below is the comment letter I submitted to the SEC regarding the proposed regulation.
My Comment to The SEC:
While I applaud the SEC's attempt to increase the obligations of registered representatives of broker/dealers to deliver advice in the best interest of their clients, the end result of the proposed rule will cause more confusion amongst retail investors, and will likely result in continued harm to the public.
First, the regulation does not subject broker/dealers to a fiduciary standard, even while using the same language in describing the obligation of a registered representative to work in the best interest of the client. This 'borrowing' of the fiduciary language without subjecting a true fiduciary relationship can only lead to confusion in the consumers' mind regarding whether the relationship is under a fiduciary standard. As a result, a great number of unsuspecting investors will believe they have a fiduciary relationship with their broker representative, when none exists.
Further, hybrid broker/dealer-registered investment advisors will continue to be able to proffer advice under a two-hat model, whereby the representative can choose whether to be subjected to a fiduciary or suitability standard, and the client is intentionally left in the dark about whether the advice is subject to fiduciary relationship or not.
Continuing the existing two-hat model can ONLY lead to clients believing advice is subject to the fiduciary standard when, in fact, a portion of the advice is not. Worse, representatives have an obvious incentive to put on their "suitability" hat when their advice is questionable as to whether it is in the best interest of the client. As a result, investors will likely be following riskier advice with greatly reduced legal recourse; which is exactly when the investor needs the added protection of a fiduciary standard.
The SEC should use this opportunity to create a regulation far more in line with the obvious congressional intent of the Investment Advisors Act, whereby advice can only be offered under a fiduciary relationship, except when it is truly incidental to the sale of a product. And when advice is offered incidental to the sales relationship, the regulation should require the registered representative to disclose the advice is being made as part of a sales transaction and is not subject to the fiduciary standard. The regulation should further clearly define what constitutes as advice incidental to a sale so that registered representatives are not left to their own discretion in deciding if they wear the suitability hat or the fiduciary hat with their unsuspecting client.
Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. He is also the owner of Purposeful Strategic Partners, a Registered Investment Advisory firm. He can be reached for comment at [email protected]
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