The demise of Active Management has resulted in a brighter future for all investors (the good news), but the bad news is the continued business practice of paying commission to sales people creating an obvious conflict of interest. The incentives are structured to maximize revenue for Wall Street and those masquerading as advisors. I realize I am not telling you something you don’t already know.
I have written about this problem in the past. The system drove me out of the brokerage business after a very brief stay. That was almost 30 years ago, but last May I wrote and shared with you well documented evidence that nothing has changed. It’s part of the culture and too profitable for every one but the investor.
You should go back and review those two posts. I pointed out the banning of this practice in the U.K. and Australia while recognizing the difficulty of reforming the system here in the U.S. Wall Street simply has too much, well paid for, influence over our legislators.
What brought my attention back to this issue now are the current attempts to pass legislation that would create a fiduciary responsibility for Wall Street’s sales people to put their clients interest ahead of their own. (It would be simpler and more effective to simply ban commissions, but I’ll take what we can get for investors.)
Paul Ryan is the lead defender of commissioned based investment advice telling us that the government has no business telling brokers how to charge for their services. He claims 7 million middle class Americans will be unable to get appropriate investment advice. Sorry Paul, but thanks to the Internet, everyone has access to investment advice. This blog alone has more appropriate investment advice than you could ever get from a sales representative striving to maximize their own income. There are numerous articles regarding this subject you can access with Google. Brokers are claiming that most of them already put their clients interest ahead of their own. According to the research I referred to above, that is far from the truth.
So this is the bad news. It’s one more example of the control Wall Street has over our lawmakers. Paul Ryan receives a major portion of his campaign funds from Wall Street so he is simply acting in his own self-interest. I wish however, he could sit in (anonymously) on a couple of sales meetings at a local brokerage office in his own state of Wisconsin. He would then understand what Wall Street is doing to those he represents. He is supposed to be on their side and not a Wall Street lapdog.