News reports suggest that President Trump intends to undo Dodd-Frank and the DOL's fiduciary rule at a ceremony at noon in Washington. While the details are unconfirmed as of this writing, the report is consistent with statements around these issues during the campaign. It is of course too early to judge what might not materialize, but it seems to this observer that it would be a mistake to conflate Dodd-Frank and the DOL fiduciary rule, throwing out the baby with the bath water, as it were.
One needn't be a card-carrying regulatory-phobe to oppose Dodd-Frank. At its birth, the legislation weighed in at 2,300 pages, but as its provisions are converted into individual rules, it has already metastasized to tens of thousands of pages. Who can comprehend such a thing? How does that add clarity to our bank regulatory system? What's more, Dodd-Frank is already a proven failure. Enacted to undo a financial system thought to be captive to too-big-to-fail banks, we find today that the five largest banks have an even greater market share now than in the midst of the global financial crisis. And the monstrosity of its zillion pages of rules and regulations would seem tailor-made to further protect the advantage of the biggest banks. Call it the Full Employment For Regulatory Lawyers Act.
DOL's controversial fiduciary rule bears some commonalities with Dodd-Frank. For one thing, it is confusing, establishing various rules and then providing countless exceptions that seem to undermine its purpose. But greater importance seems to lie in their differences. First of all, the DOL rule does not take effect until April 10, so it has no track record whatsoever. Secondly, from its inception, critics of Dodd-Frank warned the legislation would not end TBTF banks, and pointed out why (and were right). But the DOL rule's critics, of which there were many, did not argue that the rule would be ineffective at increasing fiduciary advice. Rather they argued it would have unwanted side effects, like shutting out the middle class from access to financial advice. For that reason, quashing the rule now will give the appearance of trying to stamp out the fiduciary motive behind it.
If today's announcement includes a pledge to take another better path toward fiduciary advice, then so much the better. The DOL's efforts were, to this observer, less than impressive. But even worse is a system that includes two standards - fiduciary advice and something less than that. Whether in the regulation of banks or brokerage firms, the goal should be an approach that is consumer-friendly and clear.
Please share your thoughts in our comments section. And here are today's advisor-related links:
- The Institute for Innovation Development, a new contributor, is opening a dialogue with FAs on Peter Drucker-style innovation.
- John M. Mason explores the likely shape of Trumpian tax reform.
- Ian Bezek analyzes what could be online brokers' new price war.
- Jeff Miller's Stock Exchange contrasts different trading models.
- AllianceBernstein: What do rising rates mean for stock pickers?
- For more content geared to FAs, visit the Financial Advisor Center, sponsored by Franklin LibertyShares ETFs.