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Retirement accounts - Fiduciary standards


Guest longinvestor
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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.

 

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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.

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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."

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