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“Because They’re Actually Not”: Why Republicans Struggle To Convince Ordinary Americans The GOP Is On Their Side

Attention, Republicans: if you want to know why Americans never seem to believe you when you say you have ordinary people’s interests at heart, look no further than the new regulation governing investment advisers the Obama administration has now released.

I realize that few readers will lean forward with excitement upon reading the words “fiduciary standard,” but this is actually an important topic, both substantively and politically, so stay with me. The new regulation, which had been in the works for some time, says that investment advisers are required to follow a fiduciary standard, which means nothing more than that they have to be guided by what’s in their client’s best interests, just like a doctor or lawyer must.

You might ask, who on earth could possibly object to that? Other than the investment advising industry, of course. The answer is…the Republican Party.

Not the whole party, actually. Most Republicans would rather not discuss this issue at all, because doing so puts them in an uncomfortable place. But I have yet to find a single elected Republican who comes down on the side of the fiduciary standard.

To explain briefly: As things exist today, when you hire a financial adviser, they’re under no obligation to actually give you advice that’s in your best interests. What they often do instead is sell you products from which they’ll obtain bigger commissions, pushing you into investments that make them more money but won’t necessarily be good for you. The new regulation changes that, imposing the fiduciary standard on those advisers. This is a very big deal, because we’re talking about an industry that manages trillions of dollars in Americans’ money.

This morning I spoke to University of Chicago professor Harold Pollack, co-author (with Helaine Olen) of The Index Card: Why Personal Finance Doesn’t Have to be Complicated and a longtime advocate of the fiduciary standard. He was, unsurprisingly, enormously pleased by the administration’s move.

“People are unaware of the many conflicts of interest that exist in the financial advice industry and how much money it costs them over the course of their lives,” Pollack said, noting that selling clients products they don’t need is a core part of the industry’s business model.

But Pollack is quick to note that financial advisers provide an essential service, since most of us don’t have the expertise to make good investments and save properly for retirement or our children’s education. It’s also an extremely intimate relationship — Americans are notoriously secretive about their finances, which means you’ll share details of your life with your financial advisor that you wouldn’t tell friends or even some family members. That’s why it’s essential that the relationship is based on a core of trust.

“When people are dealing with financial advisers,” Pollack says, “they need to know that what they are getting is actual advice and not a sales pitch.” He also pointed out: “The research that has come out about the poor performance of actively managed investments has had a huge impact.” More and more people are becoming aware that the best investment strategy is often to simply park most of your money in a low-fee index fund; no matter how smart your adviser is, you aren’t going to beat the market.

So what are the political implications of this new rule? On the surface, you’d think that a position in opposition to the administration’s move would be almost impossible to defend. Who’s going to argue that your financial adviser ought to be able to push you into buying something you don’t need? That’s just a couple of steps away from outright fraud.

But if you listen to Republicans, it becomes clear they don’t like the rule, but not for any specific reason relating to the rule itself. They’ll talk about Washington bureaucrats and Obama overreach, but the tell is in their repeated use of the phrase “Obamacare for financial planning!” (here’s an example from Paul Ryan). Whenever Republicans say something is “Obamacare for X,” it’s a way of saying, “We don’t like this thing, but we don’t want to say exactly why, so we’ll just say it’s like that other thing we don’t like.”

This gets to the heart of the different perspective the two parties bring to questions of the economy and government’s role in regulating it. The conservative perspective is essentially laissez-faire: if financial advisers take advantage of their clients, well, that may be regrettable, but we don’t want the government to actually do anything to prevent it, because we have to let the market do what it will. And when it comes to the affirmative policy changes they want to make, for ordinary people most of it involves waiting for things to trickle down. Let us cut taxes on the wealthy and reduce regulations on corporations, they say, and that will create the conditions that will foster economic growth, so that at some time in the future it will be easier for you to find a good-paying job (those getting the tax cuts and regulatory breaks, on the other hand, get their benefits right away).

Liberals, in contrast, are comfortable with making policies like the fiduciary rule — or increases in the minimum wage, or paid family leave, or more inclusive overtime rules — that are designed to deliver immediate benefit to ordinary people. And as complicated as economic policy can sometimes get, most voters can understand this fundamental difference. That’s why Republicans constantly have to struggle to explain why they actually have ordinary people’s interests at heart, and why Democrats can just say, “Yep, there go the Republicans again, just trying to help the rich and screw the little guy,” and voters nod their heads in recognition. Republicans may think it’s unfair, but when they oppose things like the fiduciary rule or try to shut down the Consumer Financial Protection Bureau (protecting consumers, egad!), what do they expect voters to conclude?

Both Hillary Clinton and Bernie Sanders came out in favor of the fiduciary rule last fall; it remains to be seen whether they’ll bring it up again on the campaign trail. But as Pollack notes, the change might not have been possible without the attention it has already gotten. Though people in positions of power often say, “good policy is good politics” as a way of claiming that they have only the purest of (non-political) intentions for their decisions, sometimes exactly the opposite is true.

“This is an example where good politics is actually critical to good policy,” Pollack says, “because if this had been decided quietly in Congress, there’s a good possibility it would have been weakened.” The more attention it got, the more room the administration had to do the right thing. And now that they have, Democrats should keep talking about it.

By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, April 7, 2016

April 11, 2016 - Posted by raemd95 | Fiduciary Standard, Financial Industry, Republicans | Consumer Financial Protection Board, Economy, Financial Advisers, Liberals, Paul Ryan, Personal Finance, Trickle Down Economics