Borzi’s Fiduciary Burden on Broker-Dealers

Who ought to have greater fiduciary duties: a consumer-selected, paid adviser whose advice is optional, or an adviser who you legally must pay and whose advice is imposed by law?

Assistant Secretary of Labor Phyllis Borzi believes the former.

The Department of Labor redefining the term “fiduciary” does just that. Paid investment advisers will be held to a greater fiduciary standard than the federal government and elected officials. The federal government meets the precise dictionary definition of fiduciary, “An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.”

From the definition it is clear that the Obama administration and past administrations have not lived up to their role as fiduciary to the taxpayer. The United States has not had a budget in three years and has $14 trillion-plus in debt. That alone would violate any definition of fiduciary.

Policies of this nature have been consistent throughout the Obama administration: Over-regulate the business community, stifle economic growth, and hinder job creation. All with lip service of protecting the middle class and equality, while in reality the policies expand the divide. Limiting access, individual choice, and raising the price of financial products only furthers the gap between the rich and poor.

DOL redefining fiduciary turns the 37-year-old five-part test of a fiduciary into one.  Previously, an adviser must meet each part of the test. Now, there is one test that engulfs investment advisers, broker-dealers, and educational investment advice assumes fiduciary responsibilities.

Borzi’s logic for the new definition is two-fold: to protect the working class, “it is imperative that good, impartial investment advice be accessible and affordable to plan sponsors and especially to the worker who need it most.” If only the taxpayer was afforded the luxury of impartial advice. Representatives self-deal and support special interests without regard to the public interest.

Second, to combat the complexity of financial services for the average investor, “the variety and complexity of financial products have increased, widening the information gap between advisers and their clients and increasing the need for expert advice.” The Obama administration has increased the complexity of government possibly more than any other. Most do not have time to read the thousand-page bills of Dodd-Frank and Obamacare. Taxpayers forced to rely on its fiduciary representatives, who are as clueless as the rest of us — according to the words of Nancy Pelosi, “we have to pass the bills so that you can find out what is in it”.

More reasoning from Borzi on why to increase fiduciary responsibilities, “the consumer may be reluctant to question the advice, not wanting to imply that the adviser is being dishonest or come between the adviser and his pay.”

Voters in the 2010 election voiced their grievances with the incumbent administration, yet their pleas fell on deaf ears. The Obama administration has yet to come up with a budget, ran up the largest amount of debt of any peacetime administration, raised the debt ceiling again, spent billions bailing out failing companies, and pushed through a failed stimulus. All clear violations of their fiduciary duties. Yet the government is allowed to continue unchecked.

Borzi’s rhetoric sounds appealing, until you actually read what redefining fiduciary will do. Imposing the new standard will limit access, raise the price, and leave investors less educated. No longer will investment advisers be able to educate investors without assuming fiduciary duties. The price for investment advice will increase because of the greater liability. Last, access to the most common financial product, commissioned-based brokerage advice, will be limited.

The federal government meets the new or old duties of a fiduciary, but the feds cannot live up to the standards of either rule. Borzi in her written testimony echoes the definition of fiduciary, “including a duty of undivided loyalty to the interests of plan participants and a duty to act prudently when giving advice. Fiduciaries face personal liability for any losses arising from breaches of such duties.”

If the federal government was held to such high standards, a massive class-action lawsuit against the government would immediately follow. Every representative who has contributed to the massive debt and out of control spending would be on the hook to their district or state.