SEC rule

The Securities and Exchange Commission, the chief regulator in charge of Wall Street, has a startling message for investors: “You’re on your own.”

The SEC has just opened to public comments a potential change to how your stockbroker must operate.

The only reason any action is being considered at all is because another government agency, the Department of Labor, tried to force brokers to disclose serious conflicts of interest when selling retirement investments.

That rule is now on ice, thanks to government delays and a lawsuit.

All the while, the SEC fumed that it was their job to regulate stockbrokers. Effectively shamed into taking action, the agency finally has taken a half-hearted step forward.

Devil in the Details

But when you look at the proposed rule closely, it fails to address the elephant in the room — corrosive fees — and does investors a huge disservice by only pretending to regulate how stockbrokers make money.

Essentially, the SEC will allow stockbrokers to continue to sell conflicted-ridden, overpriced products to their customers so long as they don’t claim to be financial advisors and promise to act in the “best interest” of their clients.

That’s a far cry from requiring brokers to be true fiduciaries, which was the point of the years-in-the-making Labor Department effort.

By law, a fiduciary must act in the interest of the investor first — ahead of his or her own interests. The vague phrase “best interest” essentially leaves it up to the stockbroker to decide.

That means stockbrokers are free to continue to sell expensive investments that pay juicy hidden commissions while masquerading as real fiduciaries. Nobody will be the wiser.

Here’s the rub: For serious long-term investors, the expensive investment by definition is the wrong investment. High-fee mutual funds allow your broker collect a third or more of your returns.

Wall Street has perfected a sales model fueled by obscure fees customers don’t understand. You take the risk and the broker makes bank. And it has gone on like that for decades.

Tricky Titles

For decades, too, stockbrokers have muddied the waters by using the title “financial advisor” or “retirement advisor” when truly they’re just commissioned salespeople.

Under the new rule, brokers would be barred from using the title “advisor.” That’s the change the SEC seems to believe will protect investors.

Believe me, the industry will dream up some workaround and just move on, profit pipeline intact. Every broker will be a vice president or a manager or something equally meaningless.

As for investors, well, you’re on your own, as usual.


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