For some time now, SIFMA, the self-described "voice of the U.S. securities industry," has been loudly proclaiming its support for a fiduciary standard for brokers while working overtime to kill Department of Labor (DOL) rulemaking to achieve that result.
To hear SIFMA tell it, its members are all for a "best interest" standard but remain deeply concerned that middle-income investors will lose access to valued services if the DOL rule forces brokers to move clients into fee-based accounts. Fair enough. But since SIFMA has continued to make this argument long after high-ranking DOL officials publicly and repeatedly stated that they have no such plans, even the most gullible among us had to suspect that there was something else going on.
Enter an explosive new blog post at AdvisorHub, which purports to quote a high-ranking Morgan Stanley executive deriding the notion that Wall Street would ever allow a real fiduciary standard to be applied to its business. "The very idea that firms like us are just going to sit back and allow multiple streams of revenue to just be wiped off of our books is pure comedy," he allegedly writes. "It is the equivalent of asking the hedge fund business to give up half of there [sic] fees just because it is the 'nice' thing to do."
A word of caution: Both the source of the emails and the executive in question are unidentified, so it is possible that this is a spoof. But the arrogant assumption that Wall Street runs Washington and the patent disregard for investor well-being give it a convincing ring.
In quotations allegedly taken from an exchange of emails, the executive reportedly goes on to say that, while "regulatory moves like Dodd/Frank can be managed around," imposition of a fiduciary duty on brokers "is clearly a bridge too far and will be where we draw the line." He brags, moreover, that just one call from industry executives had caused Securities and Exchange Commission (SEC) Chair Mary Jo White to immediately soften her stance after her recent public statement of support for fiduciary rulemaking.
"I can tell with near certainty, at least in the SEC, this is going absolutely nowhere," he reportedly wrote. "There may be some optics around it, but it is dead. No shot. None. Can I make that any clearer?" He adds, "The only sliver of hope I see for some semblance of this finding its way into existence is if a '5% proof' watered down version ends up as part of the discussion. Anything more than that and you will end up with a whole lot more noise from our group -- certainly more than a timely phone call to the head of one of the regulatory bodies."
So is this the explanation we've been looking for? Is the support of SIFMA and its members for SEC fiduciary rulemaking, and their opposition to DOL, premised on the notion that they have the SEC securely in their pocket and anything that the agency produces will be a "5% proof, watered down version" of a fiduciary standard? If true (and the SEC's poor record on the issue lends credence to that theory), that's all the more reason for DOL to forge ahead with rules to ensure that, at least when it comes to retirement advice, the interests of investors will come first.