April 25 2018
The Department of Labor put in place a rule that would require brokers and large managers of retirement assets to act as a fiduciary of their clients, meaning to put the interests of the clients first.
This was wrecking havoc with the big banks & brokerage firms because it meant that their business model of recommending their own mutual funds or funds of firms that paid them kick-backs and very large commissions instead of other investments that could provide a better return for their clients, perhaps, low fee funds with no up-front loads (commissions). The big firms were restructuring pay arrangements with their adviser-employees (lowering pay) and an exit of employees to join or start independent firms has been in progress.
The big firms and a host of industry associations/lobbying groups sued the DOL to stop the new rule.
Meanwhile, Registered Independent Advisers (RIA), not tied to big firms or brokerages, have been required under federal laws, enforced by the SEC for over 50 years, to act as their client’s fiduciary, thus placing their client’s interests first.
NEW NEWS in March:
The Court of appeals vacated the fiduciary rule put in place by the Department of Labor. Basically, the court said that the Department of Labor over-stepped its authority and that the SEC should be handling this. Victory for industry – they don’t have to put client’s interests first. They can continue to do business as they have for the past 50 years.
There has been some action at the SEC, and there is talk of the SEC putting a fiduciary “lite” requirement into the rules for brokers and the big firms. But the news so far suggests that this rule will only help them to maintain their current business models, including kick-backs and commissions from products they “recommend” (sell) while being required to offer advice (which will differentiate them from the robo-advisors and offer rationale for charging bigger fees). So, it is not clear that the proposed rule will actually do anything to protect client investors, but will definitely protect the industry’s business model. The feedback from the industry according to news reports recently is that they are overjoyed. If such a rule becomes law, then the broker/investment industry will be able to continue to charge investment fees, recommend their own funds, take commissions and kick-backs on products, while promoting that they are offering advice that internet robo-advisors don’t. A total win-win for the firms, and continued damage to unsuspecting citizens who do business with them.
We are saddened by the recent turn of events that appears to strengthen the financial industry’s economic position and do nothing to improve the situation for investors. We at Calyx Capital Advisors are Registered Independent Advisors as defined by the Federal Investment Act. A driving force for the creation of our firm was our knowledge of the deplorable industry practices that have led to high incomes for employees and lower returns for investors (as noted in countless articles and studies over the years). We chose to do business differently. We at Calyx are required to place client’s interests first; acting as their fiduciary. We have never received a commission for any investment product that we placed our clients into, nor have we ever received a kick-back or any other preference from suppliers of products. Nor do we put clients into “models” with rebalancing that create transaction fees on a defined schedule while selling products that have produced gains and buying those that have not done as well or are losing money. We are not sales people for industry products.
God bless you,
Ed & Branson