For at least ten years, there has been a simmering battle between financial advisors and stockbrokers.  The battleground has been fought in the SEC, FINRA (which regulates stockbrokers) and lobbyists from one end of Connecticut Avenue to the other.  It has been as exciting as watching molasses ooze.  They have been fighting about whether stockbrokers should adhere to a suitability standard or a fiduciary standard.  Are you yawning yet?

A suitability standard requires a stockbroker to put the money of his clients into investments that are suitable.  That means a barely-suitable mutual fund can pay “kickbacks” or hidden fees to the stockbroker and his employer.  It is not uncommon for a stockbroker to spend a week in Hawaii with his wife, all paid for by the mutual fund company, just for investing, say, $250 thousand of client funds in that particular mutual fund.  Sometimes, the mutual fund companies pay big upfront commissions plus “12b-1” fees to stockbrokers each year.  Sometimes, the stockbrokers employer operates their own mutual fund, keeping all fees for themselves.  Personally, I find all this very sleazy!

A fiduciary standard requires a financial advisor to put the best interests of his client before his own.  That means no hidden fees.  That means the choice of mutual funds is based on the client’s investment needs, not the income needs of the stockbroker.

For at least ten years, there has been a lot of talk about this and no action — just like immigration.  Yesterday, the President did an end-run around the SEC and FINRA and the lobbyists by proposing the Department of Labor start enforcing the fiduciary standard on managers of retirement funds,

It is similar to the immigration battle, don’t you think?