The Department of Labor recently enacted a rule requiring that “advisors” – meaning investment and insurance sales people – who offer “advice” to participants about their retirement accounts act as fiduciaries and accept the responsibility and liability that goes along with that role. In simple terms, this means that anyone who tells you to do something – anything – with your TSP money, is obligated to put your interests ahead of all others. This poses a rather unpleasant problem for the “financial services” industry, which has built a massive profit generating machine upon a foundation that includes, as its cornerstone, an almost complete lack of accountability for quality or results. The suggestion that someone could sue a “financial advisor” for lousy advice or results that failed to meet expectations, and stand of good chance of winning, is like a crucifix to a vampire.
This is probably challenges to the new rule were being formulated even before the final decision to enact it had been announced. A group of financially industry firms and their agents have filed a suit in federal court to block enforcement of the rule on the basis that the DOL does not have the necessary authority to have imposed it in the first place. I’m not going to waste your time by arguing over the details of the rule, or its validity or enforceability. I’ll leave that to the lawyers, the courts, and, of course, the lobbyists. Instead, I want to make sure that each and every TSP participant understands the sides in this fight and the reasons for their passion for fighting.
On one side of the rule, we have disinterested fiduciaries, like the DOL. They have a mission to help protect labor – that is the people who work for their living and are trying to build some financial security. They are passionate about protecting the interests of labor against threats that might try to abuse them.
On the other side of the rule are the profiteers who pose the threat to the interests of labor that the DOL is worried about. These are salespeople, agents, and the organizations that they represent, who thrive by finding ways to separate retirement savers, like TSP participants, from as much of their nest eggs as possible. Sometimes this is accomplished by violating the rules, but usually it is easily accomplished within the rules. I say easily here because the rules are so lax regarding the conduct of the “financial advice” business, that it’s quite difficult to violate them or to create any liability from the activity that is usually required to get the job done.
The problem with the current system – the one without uniform application of fiduciary standards for all financial advice – is that it’s very difficult to know who and when to trust. Registered Investment Advisors are held to a fiduciary standard of care, while insurance agents, sales people and other intermediaries are not. But, any or all of these people may offer financial or investment advice. Combine this complexity in the financial advice landscape with concepts, products, opportunities and risks that are beyond the clear understanding of most victims, and you have set the stage for financial slaughter.
I realize that some of you will consider this melodramatic. To those, I urge you consider, further, what could have made the financial services sector one of the richest and most powerful segments of our economy. Was it brilliance, honesty or just plain hard work? Please! Look at the history of the industry. It has proved its self to be incompetent, corrupt and more interested in its golf handicap than its customers’ success, time and time again. It was, and continues to be, the result collecting payment for promises it won’t keep, or results it won’t deliver.
The industry that can’t stop telling you how much they care about you and your future – how they’re “in it” with you – is the same industry that continues to fight tooth-and-nail behind your back to avoid being accountable for breaking that promise. They claim that forcing them to stand accountable for how they handle your interests will only lead to law-suits, liability, and higher costs, for you. Think about that. They want to be allowed to continue to abuse you to avoid having to make you pay for being caught abusing you!
As a TSP investor, let the continuing fight over the DOL’s fiduciary rule – a rule intended to protect and help TSP investors – remind you to be careful. Be skeptical. Withhold your trust until you are sure. Don’t act – particularly when it comes to taking money from your TSP account – until you know exactly who you are dealing with, how they are paid, whether they may have any conflict with your interests and how much it will cost. If the financial services industry is successful in their challenge, you’ll be the only help you’ve got.
Written by Mike Miles
For the Federal Times
Publication June 13, 2016