October 2, 2015
A Fiduciary Critic, Representing Whose Interest?
BloombergView, Barry Ritholtz
A fiduciary is obligated to put the client’s interest first. Period. It is higher duty of care owed to clients than the traditional broker “suitability standard.” The change in standard [proposed by the Department of Labor] requires the adviser to put the client’s interest ahead of even the adviser’s own pecuniary interests. That is a huge change. It requires that all compensation-related retirement plan advisers must act as fiduciaries. The thinking behind the Labor rules is that retirement investment costs have slowly inched up, to the point where now they take a meaningful chunk out of people’s nest eggs. There is a lot of money involved. How much? As an example, let’s consider the lowly 12b-1 fee. It is a marketing fee paid to various agents to use their mutual funds. To grossly oversimplify this, think of it as a similar fee that food companies pay supermarkets for prime shelf space. Mutual fund companies pay brokers to carry these funds on their platforms. And that’s just one small fee. The total of all fees involved likely exceeds $100 billion.
Read full BloombergView article by Barry Ritholtz here.