Our Time Has Come

At the next cocktail party, trying mentioning that your firm does “fiduciary work” for qualified retirement plans.  Immediately, people’s eyes glaze over, they bolt to re-fill their drinks, and those who remain simply give a quizzical nod desperately trying to be polite.

Fiduciaries, fear not!  Our moment in the spotlight has arrived.

Yesterday’s New York Times editorial, Successful Investing for the Long Haul, highlights a long simmering regulatory battle between Washington and Wall Street.  Shortly after the financial crisis of ’08-’09, the Department of Labor issued proposed new regulations pertaining to the definition of fiduciary under ERISA.

Wall Street fought back hard, and the regulation wallowed in the backwater of rule making.

Until late February, that is, when President Obama, with Senator Elizabeth Warren (my Senator) at his side, announced in a speech made at the national headquarters of AARP, that he wanted the DOL to move forward with the fiduciary regulation project.

Subjecting brokers and financial advisers to a fiduciary standard captured the headlines.   Brokers must put client interests first — not simply as an advertising tagline, but rather in reality.

Digging beneath the headlines, however, uncovers a potential massive re-structuring of Wall Street firms.  $24 trillion of retirement assets (as reported in the ICI 2014 Annual Report) currently flow through the financial system and Wall Street .  10 basis points here, 10 basis point there, suddenly becomes a lot of money.  These financial firms have a lot at stake.

Once brokers are “deemed” fiduciaries, all related revenue streams will have to be examined and analyzed to determine if there are prohibited transactions or conflicts of interest.  Financial firms are going to have to under take a through review of their business models.

Wall Street will not look the same afterward.  Stay tuned.

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