Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. REGULATION AND LEGISLATION
January 18, 2017 12:00 AM

How President Obama changed investing forever

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bloomberg

    Here's how one corner of Wall Street got a lesson in the power of the U.S. presidency.

    For years, personal finance writers have warned readers to keep an eye on their financial advisers. Some advisers, we pointed out over and over, are more like salespeople, paid to steer you toward particular products and prone to charging huge, unnecessary up-front fees. Other advisers are “fiduciaries,” allowed to charge for their services but required to put their clients' interests first.

    We could sense many readers didn't quite get it. The concept of a “fiduciary” seemed legalistic and abstract. It was also hard to believe. Why wouldn't financial advisers put their clients' interests first, as doctors, nurses, and lawyers are bound to do? What kind of business model is that?

    Then the president of the United States got involved. In early 2015, the White House Council of Economic Advisers put out a report estimating that “conflicted investment advice” cost Americans $17 billion a year. It isn't clear what got more attention, that figure (which the financial industry disputed) or the White House letterhead it was delivered on.

    More headlines came when the federal government started tightening regulations on nonfiduciary advisers. The U.S. Department of Labor's rule, now finalized and scheduled for implementation in April, requires that firms put clients' best interests first when handling retirement accounts.

    This was hardly the top priority of President Barack Obama's administration. But, despite fierce criticism from industry groups and members of Congress, the administration persisted. Mr. Obama mentioned the topic again in his Dec. 17 weekly radio address. “We cracked down on conflicts of interest by making sure professionals who give you retirement advice do so in your best interest, not in theirs,” he said.

    President-elect Donald Trump could delay the new rules or, eventually, scrap them. Critics argue the DOL rule will raise the costs of financial advice, and thus limit access for middle-income investors. A bill introduced Jan. 6 by U.S. Rep. Joe Wilson, a South Carolina Republican, would delay the DOL rule for two years. He called the rule “one of the most costly, burdensome regulations to come from the Obama administration.” Trump adviser Anthony Scaramucci, the founder of SkyBridge Capital, told Bloomberg News that it's “a bad regulation that will kill jobs and hurt the very investors it purports to protect.”

    It may be too late.

    Wall Street is already spending millions of dollars overhauling procedures and creating new products that are easier to sell under the new rules. JPMorgan Chase and Bank of America's Merrill Lynch both announced they'd stop charging commissions on individual retirement accounts. Insurance companies are creating new, DOL-compliant products, as sales of variable annuities, frequently criticized by experts for high fees, plunge.

    “I personally don't think you can put the genie back in the bottle,” Gary Shedlin, the chief financial officer of BlackRock, the largest asset manager in the world, said last month at a conference. His firm, and others, should ultimately benefit from the rule, Mr. Shedlin said, because “a better ecosystem for the end client will ultimately result in people feeling more comfortable to put money to work.”

    Even if firms wanted to go back, would their customers let them? Presidential attention didn't just change the rules. It helped change how investors shop for financial help. Journalists had a new excuse to repeat their warnings about conflicted advisers and high fees.

    So did comedians. In June, shortly after Mr. Obama vetoed a congressional resolution that would have blocked the DOL rule, John Oliver spent most of his show, "Last Week Tonight," talking about the dangers of high-fee retirement plans and nonfiduciary advisers. Kristin Chenoweth and Billy Eichner were enlisted to drive home the advice. So far, 5.7 million people have watched Oliver's video on Youtube. Money Magazine put Mr. Oliver on its cover last month, declaring him the year's “Money Champion.”

    For the first time, people seemed to understand what the experts and better-informed investors had been trying to explain — that high fees and conflicts of interest are dangerous for anyone saving for retirement. Those ideas were already driving a surge of money into low-cost index funds and away from expensive actively managed funds. Over the last couple years, they took hold among the wider public.

    It started in 2015, when the White House began talking about the issue. For the first time, people began to specifically request “fiduciary” advisers, said Sheryl Garrett, founder of the Garrett Planning Network, which connects people with hourly advice from fiduciary financial planners.

    “They didn't necessarily know what 'fiduciary' means, but they have learned [that] they only want to work with a fiduciary,” Ms. Garrett said. Those requests only increased over the past year, she said, with many of her customers citing Oliver's influence.

    Congress and Mr. Trump may try to dislodge the new regulations, but some of the changes to Wall Street business models and investor perceptions look permanent. The old models relied on customers' trust, and ignorance. These days, if you're an adviser sticking to the familiar sales pitch, be prepared for a barrage of tough questions.

    You have Mr. Obama to blame.

    Related Articles
    Trump adviser Anthony Scaramucci promises to 'repeal' DOL fiduciary rule
    Repeal and replace DOL rule on fiduciary conflict of interest
    Don't junk the DOL fiduciary rule
    Uncertainty of regulations the only certainty in 2017
    Big players pan modifications to DOL's Form 5500
    DOL's Borzi on the fiduciary rule: There is no going back
    Financial industry expects quick action from Donald Trump to delay DOL fiduciar…
    Owner of Chicago Cubs breaks down factors for success at conference
    Recommended for You
    Investors hail SEC guidelines on exchanges
    Investors hail SEC guidelines on exchanges
    Standards-of-conduct rules approved along party lines
    Standards-of-conduct rules approved along party lines
    SEC passes Reg BI package by 3-1 vote
    SEC passes Reg BI package by 3-1 vote
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing