top of page

I Pledge Allegiance to Whom?


There’s currently a battle brewing even more contentious than Bill O’Reilly and blondes:  namely, Wall Street vs.  the Department of Labor (DOL).  The DOL wants to extend the Fiduciary Rule to all financial professionals, brokers, and insurance agents. The proposed rule would expand the “investment advice fiduciary” definition under the Employment Retirement Income Security Act of 1974 (ERISA).[i]  Simply put, the Fiduciary Rule has 3 straightforward provisions:

  • Act in a client’s best interest & suitability

  • Receiving a clearly disclosed reasonable compensation

  • Not making misleading statements to clients

Ok, so what’s the issue? As a voice of the largest wealth mgmt. firm on East Cook Road, we felt compelled to offer our two cents & weed through the wonky legalese.  Foremost, we applaud regulators’ efforts to further protect consumers from financial abuse.

What’s fascinating, though not unexpected, is the pushback from major wire houses like Wells Fargo, Goldman Sachs & Merrill Lynch.   This rule is at odds with their long standing modus operandi.  And they are trying to filibuster the Fiduciary Rule to death - hiding behind the tired, compliance complexity cost excuse.  The deep pocketed lobbyists would like to delay a rule stay until 2018.[ii]   Perhaps the reality is lost revenue.  A 2015 report found lousy biased advice drained $18 billion from retirement accounts.[iii]

The debate, if nothing else, has shined a bright spot light on the importance of the often trivialized Fiduciary Rule. A spot light, it seems, Wall Street wishes would burn out.  But investors are becoming more educated.  They are rightly demanding more transparency, lower expenses and assume their best interests are forefront.  The days of paying high product commissions, 12b-1 fees, and mutual fund loads should be laid to rest.

But Wall Street & their well-dressed legal teams are not going down without a fight.  Specifically, the Fiduciary Rule only applies to retirement accounts. So, taxable accounts are still fair game.  They have also gained the BICE (Best Interest Contract Exemption) provision.  This is simply an admission where a conflict may exist but they’re going to charge you a commission anyway. Tails they win; heads you lose.  

In fact, I recently did client retirement review. As a professional courtesy, I will withhold the brokerage name. {rhymes with JT Smorgan}. This was the actual statement disclosure:  Your financial advisor will no longer be able to provide investment guidance on this account.  You will no longer be able to contact your advisor.  Your account fees, which are listed in the enclosed agreement, will remain the same.  So let me get this straight: You’re not going to get any advice.  You can’t call your supposed advisor for guidance.  But your fees will not be reduced to reflect these service cuts.  That’s akin to a landscaper sending you a bill for not mowing your lawn.  

Without question, the financial advisory business is susceptible to shadiness. Gonifs are aplenty.  Houlihan Asset Management LLC adopted and embraced the Fiduciary Oath at its 1998 inception. At a bare minimum, we can control our ethics, expenses, objectiveness and transparency. It remains to be seen if Wall Street will be held to the same standard.

Fiscal Fitness is a publication of Houlihan Asset Management, LLC for the benefit of its clients and friends. Houlihan Asset Management.  Practical Advice. Prudent Investments.

Copyright 2017

[i] DOL 2017

[ii] Investment News, March 2017

[iii] White House Council of Economic Advisors 2015


bottom of page