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So Much Losing

Damn right I’m angry.

You’ve probably read that the Second U.S. Circuit Court of Appeals upheld the SEC’s ridiculous Reg BI Rule, which was basically crafted by brokerage industry lobbyists to allow them to claim their reps were acting in their clients’ best interest while continuing to adhere to a suitability standard in their sales recommendations.  Worse, it imposes meaningless disclosure obligations which do more to obscure than illuminate consumers, and further burdens true fiduciary advisors who have a lot better things to do than show their clients yet another disclosure.

You can read the full text of the suit by the XY Planning Network (which I think offered the most compelling argument against Reg BI) here:, but the gist of it is that instead of putting brokers on a regulatory standard no less stringent than RIA planners (which was the plain intent of the Dodd-Frank Act, as Chris Dodd and Barney Frank both testified), the SEC’s new initiative codified the separate regulation of the two, allowing brokers to be regulated under a lesser standard. 

I think most of us understand that, in theory, the SEC was created to protect consumers, but at this point, it has become hopelessly subservient to its masters on Wall Street.  Its lobbyists dictate SEC policy, its lobbyists forbid certain initiatives, and its attorneys negotiate sweetheart slaps on the wrist whenever the brokerage firms commit frightening betrayals of their customers.  Some of us still remember that Goldman Sachs, whose chairman asserted that the firm was doing “God’s work,” allowed some of its customers to create a toxic mixture of CMOs that were destined to blow up, sold the toxic mess to its more gullible customers as a really swell investment for great commission revenue, and for additional revenue allowed the customer who designed the product to place leveraged derivative bets that it would fail.  You don’t have to guess how many Goldman executives served jail time for developing that crafty scheme; it’s the same number of brokerage executives who served jail time for bringing the global economic system to the brink of collapse in 2008. 

I’m angry because after the next awful scandal (and there will be one), the brokerage industry will collectively hold up its hands and point to Reg BI.  They had no obligation to put the interests of their customers ahead of their own, and if you don’t believe that, just look at the plain text of the most recent regulatory initiative by the government regulator whose mandate is to protect consumers.

I’m angry because the judges of the Second Circuit seem not to have been bothered by this transparent example of a protector of consumers protecting instead the brokerage firms that are least interested in the welfare of consumers.

And I’m angry because the professional advisors who are most interested in the welfare of investors and the consuming public will be put at a disadvantage by misleading disclosures, dictated by brokerage industry lobbyists, sanctified into regulatory obligations by the SEC.

I hope there are appeals to this decision, but at some point the people who actually care about consumers tend to run out of resources, while the brokerage firms have pockets as deep as a black hole to keep fighting against whatever is right and beneficial and a constraint on a greedy business model.  My best hope now is that the trend of more consumers becoming more aware of the self-interested nature of brokerage advice continues.  We lose in court, but we have hope of winning in the marketplace.