This is the time of year when experienced journalists often try to put off posting really big stories until the New Year. I thought about doing that with this one, but, hey, who knows what the New Year will bring. This story might be old news by then.
Skip Schweiss, long-time fiduciary advocate, told me several interest facts when I interviewed him recently, (see "Exclusive Interview: Skip Schweiss Calls Disclosure 'Terrible,' Says It Would 'Confuse' Investors," FiduciaryNews.com, Dec. 16, 2014). Among the many unexpected turns taken in the interview (including where he questions the original strategy of fiduciary proponents, albeit from the advantage of 20-20 hindsight), perhaps the most revealing was this tidbit:
He feels the DOL has advanced much further than the SEC in terms of defining a uniform fiduciary standard. He suggests that, while the DOL is tightly focused on its mission to protect investors, the SEC must heed to the wants of a three-headed boss. Besides protecting investors, it must also facilitate capital formation and ensure fair and efficient markets.
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Think about these three objectives. Capital formation is critical to keeping our economy sound and fluid. To maintain a growing standard of living, we need to encourage entrepreneurs by giving them ready access to the necessary capital. Fair and efficient markets are necessary to protect the ultimate interests of those entrepreneurs and their backers.
These two imperatives must come first, for, without them, we'd have no markets for investors to invest in. Therefore, while investor protection is important, it cannot impede capital formation or the rewards that come from taking capital risks.
For those new to the scene, this is a classic conflict-of-interest conundrum. The SEC constantly finds itself between a rock and hard place. It's forced to make a difficult decision between protecting the investors, protecting the entrepreneurs, and protecting the intermediaries between them. Tilt one way too far and you destroy the credibility of the entire capital market system that has propelled our nation to one of the shining civilizations in all history.
But maybe the SEC serving more than one principal leaves the SEC the jack of all trades and the master of none. Maybe, just maybe, the SEC's mandate is too big for one single government agency to carry out.
Maybe it's time to break up the SEC.
I'm old enough to remember there was a time when baseball fans outside of the Big Apple cried, "Break up the Yankees!" (I'm not old enough to have actually lived in that era, but I remember people talking about it.)
The problem was the Yankees were too good. They kept winning World Series. Unless you were a Yankees fan, you felt there was something inherently unfair about this. Ergo, you wanted to see the Yankees broken up.
The SEC is not the Post-WWII New York Yankees. The SEC is not that good. In fact, some (cue to Mark Cuban) suggest the SEC is just not good, period.
Could it be the reason for the SEC's lack of efficient is the dramatic conflict-of-interest created by its own obligations? If that's the case, then would the capital markets be better served without a single overseer, but with several?
This is not a radical idea. The banking industry is not regulated by the SEC. The DOL does an admirable job protecting the interests of retirement investors. Why put all this pressure on the SEC?
Why, indeed. It's time to talk about breaking up the SEC.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
