consultants are sandburs

Monday, May 04, 2015

At one point a local website had a sidebar, something about a Norm Coleman weasel meter. Nice idea. Wrong species. [UPDATED]

... nice looking mandibles too ...

These days, Norm's got this good thing.

And that bunch of propagandists have a forum website too,

since having a forum website is one of several ways to propagandize.

After all, why not set up a forum and then bloat the website with charged rhetoric, if it's your line of business?

And are they scrupulously honest in their choice of propaganda to emphasize in their publishing, or do they slide-and-glide, shading facts in favor of their cronies and their cash flow sources?

(In case you are clued out entirely, that is what is called a rhetorical question.)

So, what's my evidence?

Or more relevant, what conclusion would normally intelligent and reasonable people draw from my evidence?

The first of those two questions will be posted next.

You answer the second.

And in answering, start with a recent AAF (American Action Forum) post, online here.

The item is couched as an "analysis" but it has the flavor of propaganda persuasiveness all about it.

The American Action Forum (@AAF) today released an analysis of the Department of Labor’s (DOL) regulation regarding financial advisers. The AAF analysis finds that the fiduciary regulation may actually hurt low-and middle-income retirement savers by making investment advice more expensive and less available. Additionally, the analysis finds that small businesses will incur significant costs if the proposal is finalized. In total, the regulation will impact approximately 20,000 small brokerage firms at a cost of up to $242,000 each.

Overall, the regulation imposes $5.7 billion in costs, and the AAF analysis includes a breakdown by state. The top four states that will be hit the hardest by the regulation follow:

[... go to the source, view the entire package, website layout included - get the flavor]

Those following the bracketed added material will see Ms. Garibay, AAF Deputy Communications Director, who took time to author the piece was careful to link to the so-called "analysis."

If ready for a big surprise, Norm's henchpersons don't like fiduciary regulations put upon brokers managing retirement savings of citizens. It's an unneeded burden, they say. Read it for yourself, this quote:

This sea change in the law would force all brokers to move to the more expensive “Registered Investment Adviser” role or charge their clients more money. The pre-publication version of the measure is 120 pages, but the regulatory impact analysis weighs in at 244 pages.


Total Lifetime Cost of the rule: $5.7 Billion ($570 million annually)
Total Lifetime Benefits of the rule: $20 billion to $33 billion ($2 billion annually)


The proposed fiduciary rule is ostensibly designed to protect investors. Unfortunately, the rule may actually hurt low- and middle-income retirement savers by making investment advice more expensive, like that of “registered investment advisers,” and less available. The consulting firm Oliver Wyman found the first version of the rule could force 12 million to 17 million investors to lose access to their current investment advice. The DOL does not address these downsides in its updated version.

As for costs, at $5.7 billion during the next ten years, the proposal easily qualifies as both “economically significant” and major. DOL projects costs stemming from advisers complying with the relevant “prohibited transaction exemptions.” A component of this burden results from developing and keeping disclosure forms and customer guides, in addition to “a new, comprehensive compliance and supervisory system and procedures and related training programs to adapt to the new uniform fiduciary standard.” In other words, the current broker model would largely be abolished in favor of a one-size-fits-all fiduciary form that may push small investors aside.

[links in original] Right. Three links; one to another AAF fluffer, another one a dead link which apparently is not enough worry to AAF to get things right and keep them factually up to date and correct. For propaganda, priorities may differ than for objective, factual reporting.

And those poor fiduciaries, having to cry while passing through all costs to those who trust them with their money and might want to see them regulated to not easily be thieves. But they, and AAF, will tell you that might not be necessary, even counterproductive, to have more rules brokers must comply with, under law. Look how good they did with derivatives trading of securitized mortgage tranches, and you have to say, "Leave these productive well-intentioned brokerage-employee Americans alone. They do fine without regulators looking over both shoulders."

While that ending language was not AAF's folks' exact words, surely not, but that's their direction. Never mind the big splat in September 2008 and onward, nothing to see there, but regulating those suckers may cost you a few more bucks per year while they hold your retirement future in their skilled hands; and you don't want that extra regulation because any interference with their exercise of skills could have consequences. Yes, consequences.

Inefficiencies, extra costs introduced into a pure market. Never a good thing, they quickly emphasize.

At least Ms. Garibay is honest enough and capable enough to get the linking right, when citing the final DOL rule proposal:

Clearly a mistake, one someone might have to answer for, yet a perceived need for an appearance of fairness may have had a thumb on the scale in weighing the giving or withholding of the one key link it the whole thing.

In any event, they gave the link, and once given, it is proper to follow up to see what the government says it is doing. And to look at the DOL language to see whether to you it is more, or less objective, and rhetorically neutral in tone, compared to the rhetorical style used by AAF.

The AAF language, "The pre-publication version of the measure is 120 pages, but the regulatory impact analysis weighs in at 244 pages," suggests verbiage bureaucratically growing every time. That can be said, but what is telling is how AAF glides and slides over the fact that the opening executive summary of the final rule proposal is a mere ten pages in length. Not a burden, instead readable during a break between periods of the Wild getting to know the Blackhawks well in the playoffs. Read it any game day.

And at p.3-5 of the DOL item's executive summary, there is this:

Since the Department issued its 1975 rule, the retirement savings market has changed profoundly. Financial products are increasingly varied and complex. Individuals, rather than large employers, are increasingly responsible for their investment decisions as IRAs and 401(k)-type defined contribution plans have supplanted defined benefit pensions as the primary means of providing retirement security. Plan and IRA investors often lack investment expertise and must rely on experts – but are unable to assess the quality of the expert’s advice or guard against its conflicts of interest. Most have no idea how “advisers” are compensated for selling them products. Many are bewildered by complex choices that require substantial financial expertise and welcome advice that is marketed as free, without knowing that the adviser is compensated through third party payments creating conflicts of interest or that hidden fees over the life of the investment will reduce their returns. The risks are growing as baby boomers retire and move money from plans, where their employer has both the incentive and the fiduciary duty to facilitate sound investment choices, to IRAs, where both good and bad investment choices are more numerous and much advice is conflicted. These “rollovers” are expected to approach $2.5 trillion over the next 5 years. Because advice on rollovers is usually one-time and not “on a regular basis,” it is typically not covered by the 1975 standard, even though rollovers are often the most important financial decisions that many consumers make in their lifetime. An ERISA plan investor who rolls her retirement savings into an IRA could lose 12 to 24 percent of the value of her savings over 30 years of retirement by accepting advice from a conflicted financial adviser. Timely regulatory action to redress advisers’ conflicts is warranted to avert such losses.

In the retail IRA marketplace, growing consumer demand for personalized advice, together with competition from online discount brokerage firms, has pushed brokers to offer more comprehensive guidance services rather than just transaction support. Unfortunately, their traditional compensation sources – such as brokerage commissions, revenue shared by mutual funds and funds’ asset managers, and mark-ups on bonds sold from their own inventory – can introduce acute conflicts of interest. Brokers and others advising IRA investors are often able to calibrate their business practices to steer around the narrow 1975 rule and thereby avoid fiduciary status and the prohibited transaction rules for accepting conflicted compensation. Many brokers market retirement investment services in ways that clearly suggest the provision of tailored or individualized advice, while at the same time relying on the 1975 rule to disclaim any fiduciary responsibility in the fine print of contracts and marketing materials. Thus, at the same time that marketing materials may characterize the financial adviser’s relationship with the customer as one-on-one, personalized, and based on the client’s best interest, footnotes and legal boilerplate disclaim the mutual agreement, arrangement, or understanding that the advice is individualized or should serve as a primary basis for investment decisions that is requisite for fiduciary status. What is presented to an IRA investor as trusted advice is often paid for by a financial product vendor in the form of a sales commission or shelf-space fee, without adequate counter-balancing consumer protections that are designed to ensure that the advice is in the investor’s best interest. In another variant of the same problem, brokers and others receiving conflicted compensation recommend specific products to customers under the guise of general education to avoid triggering fiduciary status and responsibility.

Likewise in the plan market, pension consultants and advisers that plan sponsors rely on to guide their decisions often avoid fiduciary status under the five-part test, while receiving conflicted payments. For example, if a plan hires an investment professional or appraiser on a one-time basis for an investment recommendation on a large, complex investment, the adviser has no fiduciary obligation to the plan under ERISA. Even if the plan official, who lacks the specialized expertise necessary to evaluate the complex transaction on his or her own, invests all or substantially all of the plan’s assets in reliance on the consultant’s professional judgment, the consultant is not a fiduciary because he or she does not advise the plan on a “regular basis” and therefore may stand to profit from the plan’s investment due to a conflict of interest that could affect their best judgment. Too much has changed since 1975, and too many investment decisions are made based on one-time advice rather than advice provided on a regular basis for the five-part test to be a meaningful safeguard any longer.

To be clear, many advisers do put their customers’ best interest first and there are many good practices in the industry. But, there are also many instances when consumers receive bad advice based on conflicts of interest.

To deal with these issues and update the 1975 rule for application to the current business environment, in October 2010, the Department proposed amendments to the 1975 rule that would have broadened the definition of fiduciary investment advice under both ERISA and the IRC, making more advisory activities fiduciary in nature. Under the 2010 proposal, advice could be fiduciary if given just once (rather than on a “regular basis”). Advice would be fiduciary if it were agreed that the advice “may be considered” as a basis for investment decisions (rather than as a “primary basis” for such decisions), or if the adviser otherwise was or claimed to be a fiduciary to the plan or IRA or was an RIA. The 2010 proposal also generally would have treated advice, appraisals or fairness opinions concerning the value of securities or other plan or IRA assets, including company stock purchased by employee stock ownership plans (ESOPs), as fiduciary advice. Recommendations made as part of certain sales pitches, however, would not have constituted fiduciary investment advice under the 2010 proposal. In addition, the proposal requested comment on whether advice to rollover plan assets to IRAs should be considered fiduciary advice on the investment of plan assets. The 2010 proposal did not include any new prohibited transaction exemptions. However, the Department expressed its willingness to consider granting exemptions from ERISA’s prohibited transaction rules by soliciting public comments regarding the number of transactions that would have to be restructured due to the prohibited transaction rules, whether existing prohibited transaction exemptions would be available for such transactions, and the number of new applications for exemptions that the Department could expect to receive regarding the transactions. In response, many commenters stated that new and amended prohibited transaction exemptions would be necessary under a broader fiduciary investment advice definition.

The 2010 proposal elicited extensive comments and prompted vigorous debate. While many championed the goals of the proposal and some feedback was positive, other stakeholders also expressed concerns during the notice and comment period and at a public hearing. Some commenters rejected the premise that conflicts pose any dangers to plan or IRA investors, asserting that the Department had not provided adequate evidence of tainted advice or adverse consequences. Recurrent themes from the comments were that the Department should wait until the SEC completes its consideration of related reforms and that the Department’s regulatory impact analysis was inadequate, because it neglected to consider the impact the rule would have on the IRA market [...]

[footnotes omitted] It does not seem to be heavy handed language to me, but you judge. Another thing to judge is does the AAF suggestion to "defer until ..." ring true? One can defer, and defer, and end up doing nothing. The SEC might always do something, and we can always wait and see if they do. If not that, delay has a million justifications if instigating delay cuts in the interests of those offering justifications.

In judging, note that rollover figure - $2.5 trillion collectively on the table, under guidance from others, and it just might be tempting to arrange advice of flowing cash in ways not in investor interests, but yielding the biggest yield to the advisory network.

$2.5 trillion is a zero-sum-game, where the loss from investor accounts for fees and charges exactly equals the exactions imposed by advisory persons - charges imposed by fiduciaries upon those they serve. There's much room to co-opt a share of managed money, without too much notice so long as greed is ratcheted down from extreme to borderline.

And why do those advising you about your money, trusted greatly that way, not want to be held to fiduciary standards?

Asking such a question is opening Pandora's box, but the AAF would like you to focus only on, "Hey it might cost you pocket change per-transaction, and you don't want that, do you?"

If the rollover figure of $2.5 trillion is real or exagerated is a factual question I cannot easily answer but something that can be researched by concerned readers per following DOL footnoting. Considering it as sufficiently accurate within anyone's ability to forecast the future, you might think of the churning potential that collective sum represents, over the years. And each churn of the portfolio brings a charge.

Yet the existing 1975 rule is noted by DOL as covering such an ongoing situation, churning, but not covering one shot high stakes advice.

However, the advice given, as well as can be discerned by Joe Citizen in troublesome as well as trouble-free situations, is in each instance as likely as not the advisor's best honest opinion, where sometimes good things happen, sometimes not, but sitting tight on a portfolio has its risks too so that advocating trading levels can be like the three bears, one too much, one too little, and one just right. Meaning that rules cannot be too inflexible.

Think it all over.

Now, last point, if you prefer weasel to roach in analogizing Norm, that's fine with me.

it's your choice to make.

Wrapping up; Teddy Roosevelt's speak softly but carry a big stick adage is sound, but speaking softly alone may not work as well. History has taught that. It seems all DOL wants is that bigger stick, and if the opponents of rule reform are going to be top rate and honest and pure as Caesar's wife, what's their worry?


That American Action Network is a frigging Roach Motel.
And you know it's a roach motel, since it's full of 'em.

Here, here and here. Vin and Norm. Of course. Batman and Robin roaches.

Then, Jeff Larson?

For short-memory-span challenged individuals, Rentgate. Somewhat surprising, Kazeminy (Mr. Suitgate) stayed distanced.

BIG QUESTION: Whose money is stashed in that AAN roach motel??? Big money, yes, but: Whose? Wall Street's, Koch's, and ...

"Disturbing data: The rich and powerful get their policies adopted, even if opposed by most voters," a report (with links) by Eric Black, MinnPost - 05/08/15, this link.

Read it.

No comments: