The securities industry is all atwitter at the prospect of having to put the interests of retirement plan participants above its own. It’s marshaling its massive resources to fight a rule proposed by the U.S. Department of Labor (DOL) that would require all advisors to be “fiduciaries” to the employees saving for retirement in these plans.
According to a recently published report, President Barack Obama is standing firm in his support of this rule. He stated his goal, which seems modest, as follows: “If they’re advising you on how you should save your money they should be looking out for you, not for somebody who’s selling a product that may not be best for you.”
It would take a really creative mind to fight this logic. In fact, I believe the DOL rule should be expanded to require anyone who provides financial advice to act as a fiduciary to their clients, and not be limited only to retirement plans.
Protection of economic self-interest
Those who oppose this common-sense rule do so under the pretense of concern for the welfare of investors. I suspect their real agenda involves protecting their economic self-interest. One opponent is Kim O’Brien, the CEO of Americans for Annuity Protection, a lobby for insurance investment products.
I can understand her group’s position. Advisors who are legally required to put the interests of their clients first would have to think twice about recommending most annuities and other “insurance investment products,” since many of these “investments” are high-commission securities that benefit the seller more than the investor.
Tax-deferred variable annuities are a product commonly peddled by insurance companies and recommended by brokers. Craig McCann, who holds a Ph.D. and formerly served as a senior economist for the SEC, co-authored a white paper analyzing these products. His conclusion was sobering:
“Annuities stand out as the investment most likely to be unsuitable since in virtually every instance, the investor would have been better served by mutual fund or a portfolio of individual stocks. That variable annuities hold more than $1 trillion in assets is a testament to the powerful incentives created by the insurance industry with generous commissions and the massive fraud they engender.”
The fiduciary rule won’t discourage small employers
Brad Campbell, a former Assistant Secretary of Labor, believes the proposed fiduciary rule would discourage small employers from offering savings plans. The rule does have a provision requiring that even advisors to 401(k) plans with fewer than 100 participants and less than $100 million in assets must still act as fiduciaries. But will it dissuade small employers from providing such plans?
I interviewed Joe Goldberg, Director of Retirement Plan Services at Buckingham, a registered investment advisor (RIA) firm with a large retirement plan practice, and The BAM ALLIANCE. (Full disclosure: I am affiliated with Buckingham and The BAM ALLIANCE.) He told me Buckingham and BAM Retirement Solutions together advise about 800 retirement plans in that “small employer” category and have been “bringing a competitively priced solution that adds value for both participants and plan sponsors to this market segment for more than 15 years.” Buckingham accepts fiduciary responsibility for all the retirement plans and individual clients it serves.
Goldberg noted that there are “thousands of advisors who have no problem serving as fiduciaries to plans of this size.”
Greater public awareness
The DOL’s proposed rule and the ensuing debate over it have already had one beneficial effect. Goldberg said he is getting inquiries from retirement plans asking whether firms will agree in writing to serve in a fiduciary role. These inquiries further state that a refusal to agree will disqualify a firm’s proposal from further consideration.
Don’t believe the industry
Here’s the bottom line: The only reason the securities industry opposes the fiduciary rule is that putting the interests of the client first is not in its own best economic interest.
Don’t believe any of their lame justifications.
This commentary originally appeared July 21 on TheHuffingtonPost.com
Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any links contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.
I have a crazy idea I want to run by you. Imagine that a cultural anthropologist finds one of your credit card statements in 100 years. What would your spending suggest you value the most? Based on your spending, what assumptions might someone make about how you live your life?
Our credit card statements (really, any financial statement) reveal a lot about what we care about. They are unintentional personal manifestoes. In stark detail, these statements lay out how we spend our money and our time. As a result, we end up with a clear picture of what we value versus what we say we value.
For instance, my top priorities are spending time with my family and serving in my community. In theory, every decision I make, every action I take, should be about meeting those priorities. But sometimes, my statements show I have made other things a priority. I get distracted.
Recently, I spent a lot of time on the road. It meant less time spent with family and less time available for my community. So when I reviewed my statement, I told myself a story. Those airline tickets and hotel rooms were for the greater good. But here’s the part I skipped.
Could better planning on my part have meant fewer back-to-back trips? Could I have spent my time and my money more wisely?
This exercise helped me see that my actions and values were out of alignment. The best part? The experience wasn’t a negative one, simply a timely reminder that took all of five minutes. Pull out one of your statements. You may be pleasantly surprised with the results, but don’t be shocked if the statement reveals some surprises.
Look, I know that life happens and things can change quickly. Sometimes our time and money won’t be spent perfectly. But there is a reason I often refer to the old saying, “The checkbook and the calendar never lie.” How we spend our lives, be it money or time, says something about us. It says something about our values.
Time after time, I have seen the consequences of what happens when our spending connects us to unexpected values. First, we try to shrug it off. That’s a one-time blip. If it happens again, we’ll try to pretend that was always our intention. But in the end, we’re left with the uncomfortable reality. The mental image we had of ourselves is disconnected from our real selves. That’s a hard truth to accept.
We do have another option. We can flip the equation. We can put our values first and make spending decisions that better align with our true selves. Spending doesn’t happen in a vacuum, and with a little knowledge and planning, we can end up with statements that reflect a personal manifesto that we’re proud to call our own.
This commentary originally appeared July 7 on NYTimes.com
Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any links contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.
When we think of mountain climbing, we tend to think of Mount Everest and big groups of people climbing in long lines. Armies of Sherpas create base camps and ferry supplies and gear up and down the mountain. Miles of rope anchored to the mountainside helps climbers reach the top. For a very long time, many people considered this the best way to climb a mountain.
Today, there’s a different way. First, collect everything that you’re sure you will need. Then, remove one item at a time until you get down to what you can carry. This method of climbing is called alpine style, or climbing light. The focus shifts from the traditional siege mentality of “attacking” the mountain to one of moving fast and light to the summit and back down again.
One of my favorite climbers, Mark Twight, wrote a book about it called “Extreme Alpinism: Climbing Light, Fast and High.” Alpine-style climbers keep pushing the envelope by continually focusing on taking only what is necessary to reach their goal and by really questioning the definition of necessary.
Learning about alpine-style climbing helped me see that what we think we need, and what we really need, are usually two very different things. Getting clear about the difference allows us to drop the obsession for more stuff and instead focus on enjoying the experience.
I love that idea!
Every time I think about alpine-style climbing, I can’t help but wonder what an alpine-style life might look like. Living that way would require us to question our idea of what’s necessary. I know that when I focus on stripping away what I don’t need, I enjoy life more. In fact, Steve House, one of the best alpine-style climbers, says it well: “The simpler you make things, the richer the experience becomes.”
House also serves as a climbing ambassador for Patagonia. I can’t find the original reference, but I seem to remember him saying something like, “Most people go around with a jacket designed for weather that’s going to happen 5 percent of the time. The other 95 percent of the time it’s overdesigned.” In other words, wouldn’t we rather be really comfortable 95 percent of the time and figure a way to get by during the other 5 percent?
It’s a great concept that I’ve managed to apply in my own life. In my first book, “The Behavior Gap,” I told a story about having four pairs of skis. Each set was designed for different conditions. One day, I stood in the garage debating which skis to use while my friend yelled at me to hurry so we could get to the hill.
I hated feeling overwhelmed by options. It detracted from the experience. I also remember moments while skiing where I wondered if I’d grabbed the right skis. I was so much happier when I sold all four pairs of skis and replaced them with one pair that worked great 90 percent of the time.
I recently met someone that applied this line of thinking to his business. He thought he “needed” a big warehouse, office space and more equipment to run his painting business. Of course he did, because, well, that’s what everyone running a painting business had.
So he took a hard look at how much these supposed necessities were costing him in time and money. With some careful planning, he stripped down his business to a file folder and an iPad. This small footprint offers a ton of flexibility and created many more options for him personally. He’s now running an alpine-style business.
I’ve seen a lot of other businesses that operate under a siege mentality. They focus on numbers, but not always the right ones. How many employees do we have? How much equipment do we own? How much office space do we use? It begins to look like an awful lot of stuff is necessary, and along the way, they start to lose track of their real purpose.
So what does less stuff, however you define it, mean for our lives? When we focus on the “why,” we get to forge a path that will take us to where we really want to go instead of chasing someone else’s goal.
All of this reminds me of an experience I had on the Grand Teton. I was climbing with Brad Petersen, who now runs Utah’s Office of Outdoor Recreation. We had a particular route in mind. But a storm rolled in, and we were forced to change our plans. For a moment, I was frustrated that we had been derailed, and it looked like we weren’t going to make it to the summit. I found myself wondering, “What was the point if we couldn’t finish the climb?”
Then I reminded myself, “Wait a second. We’re having an amazing day on the mountain. The rainstorm is beautiful, and I’m with one of my best friends. What do I have to be mad about?” We adjusted. We found a little shelter and enjoyed the moment. A little later, the storm passed and we moved up the mountain to see what it would give us.
We did end up making it to the summit, but now that didn’t matter. Because we were flexible and able to move fast and light, the focus shifted from the singular goal of reaching the summit to something more simple: just enjoying the experience.
Maybe how we get somewhere matters just as much as if we get somewhere. We could weigh ourselves down with a lot of stuff. We could even convince ourselves we need all of it. Or we could step back and ask ourselves, “Do we really need that?”
This commentary originally appeared June 15 on NYTimes.com
Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any links contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.