So it comes down to this. Two fierce competitors. Toe to toe. Science vs. politics. Actually, it’s more like a tag-team event – science partnering with philosophy in one corner and politics and big business together occupying the other. It has all the makings of a classic confrontation, filled with enough drama and intrigue to leave you guessing the outcome right up until the very end.
Who’ll win the 2012 War for a Uniform Fiduciary Standard?
I’m too jaded to even speculate, but allow me to at least report on the goings-on of science and philosophy whilst the industry (rather successfully) played its lobbyist games in Washington. The industry took advantage of a poorly played gambit by the SEC in early 2011 to lay the foundation of a political argument that would eventually carry the day, or at least last summer.
Relying on the secretive Oliver Wyman IRA Study, the industry bull rushed through the halls of Capital Hill brandishing “irrefutable” proof the proposed Fiduciary Rule would harm the innocent IRA masses. Data? They didn’t need to provide no stinking data. They already had the full Congress on their side.
At the, by then, much more vocal behest of a now bipartisan Congress, first the SEC was sent cowering into its corner of self-made irrelevance. Then, surprisingly, a normally stalwart DOL withdrew its updated definition of fiduciary.
So confident was the industry in its ploy to drive its strategy through a pliable Congress, it repeatedly ignored the Congressionally mandated requests from the DOL for the underlying data of the Wyman study. For the industry, their strategy appeared unsinkable.
But science has a way of eventually catching up. While the industry took to high fiving, science sought solutions. Without the ability to subject the Wyman data to anything close to peer review, science went out and obtained its own valid data set. Meanwhile, philosophy began building a counter argument proponents of the Uniform Fiduciary Standard had long (and, it turns out, incorrectly) assumed were axiomatic.
Like the sudden silent appearance of an iceberg in the cold waters of night, much of the behind-the-scenes work conducted by science and philosophy has seemingly came out of nowhere in the last week. Even as many fiduciary advocates seemed poised to through in the towel, a new Texas Tech Study directly mathematically and statistically refuted all the relevant conclusions of the Wyman Study. (See “Stunning Academic Study May Cause DOL to Retain Original Proposal for Fiduciary Definition,” FiduciaryNews.com, April 10, 2012). It turns out we already have individual states operating under the fiduciary standard. The brokers and IRA holders in those states are no worse off than the brokers and IRA holders in other states.
With their thesis taking on water – or in an amazing coincidence – the industry curiously decides to release the underlying data of the Wyman Report. The intention to close the bulkhead doors failed as, upon review, it’s rather obvious why the self-selected sample produced the self-serving conclusions.
Earlier this week, The Institute for the Fiduciary Standard submitted a comment letter to the SEC declaring the “SIFMA proposal harms investors,” according to their release accompanying the letter. Knut A. Rostad, President of The Institute, says “The Institute notes SIFMA, Wall Street’s leading lobby group, describes a uniform fiduciary standard applied to broker dealers as, in essence, a brokerage sales, or fair dealing standard.
Fiduciary duties of loyalty and due care in the investor’s best interest are replaced, for example, with BD norms regarding suitability, conflicts, disclosure, and fees. It is a dramatic departure from the Advisers Act and, we believe, does not meet the requirement of Dodd Frank which calls for a uniform fiduciary standard that is “no less stringent than the standard applicable to investment advisers.”
The brokerage industry’s once watertight scheme has begun to list. All it has left is the goodwill it has built up (bought?) with our dearly elected representatives.
Will that be enough to keep the industry heading full-steam to its intended destination or will the industry discover it has no Molly Browns?