Retirement accounts - Fiduciary standards

[Guest longinvestor]

http://finance.yahoo.com/news/obama-pushes-protections-retirement-accounts-125500164.html

 

A firestorm kicked off! In light of the coming retirement crisis for most Americans, this is a worthy cause and has good intent and IMO it is about time! It will be interesting to see how fiduciary behaviors are actually enforced.

 

 

[bookie71]

Way past due, should have been done 40 years ago.

[rb]

It sounds like a nice thought, but the proposal is totally vague and unenforceable. How do you measure what's in the best interest of the client?

 

If you look at say BRK in the 80s (not that any advisor would recommend BRK to clients) it was basically an insurance company that did leveraged (float) and undiversified stock market investing while at the same time covering large risks (CAT) in insurance. No matter how the write the rules (probably using ridiculous EMH concepts), under them BRK would look completely wrong for the "regular" investor.

 

[rb]

Liberty,

 

I think that you have posted under the wrong thread. I think you meant to put it under "Global Trading in Canadian Registered Account". Can you move the post and I will reply there so I don't muddle topics.

[constructive]

It sounds like a nice thought, but the proposal is totally vague and unenforceable. How do you measure what's in the best interest of the client?

 

Well it's currently vague because the laws and regulations are not written yet, but I disagree that the end result will be vague and unenforceable. 401K sponsors already have to adhere to a fiduciary standard. Most fee-based advisors voluntarily adhere to a fiduciary standard. The fiduciary standard actually gives them a lot clearer legal line, specifically on conflicts of interest, than non-fiduciary advisors have.

[constructive]

And talking about Berkshire, or any specific large cap equity, if an advisor suggested someone invest 100% in it, it is questionable that would meet either the suitability standard or the fiduciary standard, but if they invested 10% there would be no problem with either standard.

[tede02]

If you look at say BRK in the 80s (not that any advisor would recommend BRK to clients) it was basically an insurance company that did leveraged (float) and undiversified stock market investing while at the same time covering large risks (CAT) in insurance. No matter how the write the rules (probably using ridiculous EMH concepts), under them BRK would look completely wrong for the "regular" investor.

 

This reminds of a Howard Marks quote:

 

"Unconventional ideas often appear imprudent.  The popular definition of "prudent" - especially in the investment world - is often twisted into "what everyone does."  When courts interpret Prudent Man laws, they take them to mean, "what most intelligent, careful people would do under those circumstances."  But many of the things that have worked out best over the years - betting on start-ups, buying the debt of bankrupt companies, shorting the stocks of world-altering tech companies (I'll add shorting mortgage bonds pre-2008) - looked downright imprudent to the masses at the time."