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Chuck Jaffe: Here’s The Truth About A Controversial New Law To Protect Investors
Most of Jaffe's shots at any DOL regulations would apply to current fiduciary regulations, so I guess he's saying that we should get rid of fiduciary duties altogether, including for those professionals already acting in the clients' best interests.
I take particular exception to his first assertion, that "best" means "cheapest". That is such a strawman.
First (as I believe I've posted before), the proposed rule allows brokers to preserve their fee arrangements, which can include trailing fees. Trailing fees are funded through higher fund expenses, some of which are siphoned off to pay the brokers. Jaffe later goes on to acknowledge as much saying that brokers who want to charge higher cost funds will be able to do so (with appropriate fee disclosure).
Second, Jaffe makes the bald assertion that court rulings are saying that cheapest must be best (store brand is superior to organic). This is a complete (dare one say deliberate) misreading of Tibble v. Edison International. Here's what Fox had to say about that:
In this case, the comparison [between two different share classes of the same fund] was fairly obvious and cited directly on fees for identical holdings — return was not a consideration.
Given equal access to two share classes of a fund, the cheaper share class is better. Duh.
But it gets better. Fox goes on to point out that Jaffe wrote the exact opposite of his argument here - that funds will exploit the narrowness of this ruling to facilitate fiduciaries offering higher cost shares for virtually the same fund, let alone for different funds.
Chuck Jaffe suggests in Market Watch that funds are likely to skirt this issue by offering nearly identical fund packages. Instead of a single fund offering a share class for retail and another for institutional investors, a second fund will be created and labeled as a separate retirement fund with just enough differences to undercut the court's argument
There is a fund company that by its very design is fiduciary. Designed to offer shareholders low fees, little or no manager risk, and return the average risk of the market without the need to stock pick. But they also seem to have issues with D.O.L fiduciary proposal:
" Vanguard would have to show with their crystal ball that they provide more value at 8bps for their index fund vs the guy down the street who charges 5bps. LOL."
"Vanguard only offering Vanguard funds might be another conflict with the rules."
"Jack Bogle in an interview with CNBC ... defended Labor's initiative to craft a new fiduciary standard for all investment advisors."
"Vanguard wants to see a substantially simplified Best Interest Contract Exemptions, a more specific definition of fiduciary advice, and clearer carve outs for investor education." In other words, Vanguard is seeking clarity, not objecting to DOL regulation of retirement advisors as fiduciaries.
"Only individualized communications should qualify as investment advice, thinks Vanguard." Apparently so does the DOL: "Any individual receiving compensation for providing advice that is individualized or specifically directed ... is a fiduciary." Emphasis in original.
If one is really interested in Vanguard's thoughts, one can read them without any intermediation. Here's the Vanguard July 21st comment letter cited in the second article: https://institutional.vanguard.com/iam/pdf/FIDSTLET.pdf
For example, Vanguard's complaint about individualized communications focuses on the "specifically directed" aspect. Vanguard appears to be technically correct; as phrased the rule could be read too broadly (e.g. leading to generic marketing material specifically directed at one retiree being considered "advice"). I doubt anyone considers this to be the intent of the phrasing, though it could be tightened up. So I take this as an example of a technical correction only.
Regarding the comments you posted, clarity (one of Vanguard's bugaboos) demands that it be noted these are comments on the article, not comments in the article. As such, consider the source (just as one should take my comments with appropriate grains of salt).
Comments
I take particular exception to his first assertion, that "best" means "cheapest". That is such a strawman.
First (as I believe I've posted before), the proposed rule allows brokers to preserve their fee arrangements, which can include trailing fees. Trailing fees are funded through higher fund expenses, some of which are siphoned off to pay the brokers. Jaffe later goes on to acknowledge as much saying that brokers who want to charge higher cost funds will be able to do so (with appropriate fee disclosure).
Second, Jaffe makes the bald assertion that court rulings are saying that cheapest must be best (store brand is superior to organic). This is a complete (dare one say deliberate) misreading of Tibble v. Edison International. Here's what Fox had to say about that: Given equal access to two share classes of a fund, the cheaper share class is better. Duh.
But it gets better. Fox goes on to point out that Jaffe wrote the exact opposite of his argument here - that funds will exploit the narrowness of this ruling to facilitate fiduciaries offering higher cost shares for virtually the same fund, let alone for different funds.
dol-favorite-vanguard-has-issues-with-fiduciary
Other fund companies chime in:
blackrock-vanguard-fidelity-push-back-on-dol-fiduciary
A couple of article comments:
" Vanguard would have to show with their crystal ball that they provide more value at 8bps for their index fund vs the guy down the street who charges 5bps. LOL."
"Vanguard only offering Vanguard funds might be another conflict with the rules."
"Jack Bogle in an interview with CNBC ... defended Labor's initiative to craft a new fiduciary standard for all investment advisors."
"Vanguard wants to see a substantially simplified Best Interest Contract Exemptions, a more specific definition of fiduciary advice, and clearer carve outs for investor education."
In other words, Vanguard is seeking clarity, not objecting to DOL regulation of retirement advisors as fiduciaries.
"Only individualized communications should qualify as investment advice, thinks Vanguard."
Apparently so does the DOL: "Any individual receiving compensation for providing advice that is individualized or specifically directed ... is a fiduciary." Emphasis in original.
If one is really interested in Vanguard's thoughts, one can read them without any intermediation. Here's the Vanguard July 21st comment letter cited in the second article:
https://institutional.vanguard.com/iam/pdf/FIDSTLET.pdf
For example, Vanguard's complaint about individualized communications focuses on the "specifically directed" aspect. Vanguard appears to be technically correct; as phrased the rule could be read too broadly (e.g. leading to generic marketing material specifically directed at one retiree being considered "advice"). I doubt anyone considers this to be the intent of the phrasing, though it could be tightened up. So I take this as an example of a technical correction only.
Regarding the comments you posted, clarity (one of Vanguard's bugaboos) demands that it be noted these are comments on the article, not comments in the article. As such, consider the source (just as one should take my comments with appropriate grains of salt).