Judge Allows Shareholder Suit Against Wells Fargo Directors to Go Forward

A shareholder suit against the directors of Wells Fargo for negligence and complicity in the creation of millions of fake accounts for the fees has survived an effort at dismissal, raising the possibility of a very rare ruling of liability for board members.

[Judge John Tigar] found the complaint properly laid out evidence showing executives and directors made false statements about the scheme in the bank’s filings to the U.S. Securities and Exchange Commission…Tigar found the bank’s board members and managers knew about the illicit account-creation scheme by 2014 and also knew they’d made false statements in securities filings about the program, designed to bump up bonuses for Wells Fargo employees.

“Just as it is implausible that the director defendants were unaware of the account-creation scheme given the extent of the alleged fraud and the number of red flags, it is implausible that Wells Fargo’s senior management, involved in the day-to-day operations of the bank” weren’t aware of the effort, the judge said.

See full article on Bloomberg

The Finger-Pointing at the Finance Firm TIAA – The New York Times

TIAA’s image as a benevolent provider of investment advice is in question. Several legal filings — including a lawsuit by TIAA employees with money under the company’s management, and a whistle-blower complaint by a group of former workers — say it pushes customers into products that do not add value and may not be suitable but that generate higher fees. Such practices would violate the legal standard that applies to retirement accounts and securities laws governing investment advisers.

And while TIAA contends that its operations are untainted by conflicts because its 855 financial advisers and consultants do not receive sales commissions, former employees, in interviews and in lawsuits, disagree. They say the company rewards its sales personnel with bonuses when they steer customers into more expensive in-house products and services.

In the New York Times, Gretchen Morgenson continues by describing a confidential whistleblower complaint that:

contends that TIAA began conducting a fraudulent scheme in 2011 to convert “unsuspecting retirement plan clients from low-fee, self-managed accounts to TIAA-CREF-managed accounts” that were more costly. Advisers were pushed to sell proprietary mutual funds to clients as well, the complaint says. The more complex a product, the more an employee earned selling it.

SEC should follow the Labor Department’s fiduciary standard – MarketWatch

[F]or [SEC Chairman Jay] Clayton to truly fight for savers and uphold the principles from his speech, he should build upon last year’s Department of Labor fiduciary rule, rather than undermine it and start from scratch….Building from DOL’s rule should be music to Clayton’s ears under his sixth and seventh principles: “effective rulemaking does not end with rule adoption” — it requires rigorous analyses and detailed input — and “the costs of a rule now often include the cost of demonstrating compliance.”

Acting alone ignores the DOL’s extensive analysis and consultation, the significant compliance costs already borne by firms, and even the cost-benefit analyses conducted under Trump’s DOL that found the loss to investors by delaying the rule greatly exceeded reduced compliance costs for the interim.

If Clayton truly wishes to implement the principles he has laid out for the SEC to protect investors, he should start by endorsing the DOL rule as a solid, carefully crafted approach that has been thoroughly vetted and is well on its way to implementation.

Source: SEC should follow the Labor Department’s fiduciary standard – MarketWatch

Who Is Winning With the Fiduciary Rule? Wall Street – WSJ

Surprised?

The brokerage business fiercely fought the new retirement advice rule. But so far for Wall Street, it has been a gift.The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.

But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

Source: Who Is Winning With the Fiduciary Rule? Wall Street – WSJ

U.S. Labor Secretary says fiduciary rule to take effect on June 9 | Reuters

Despite massive efforts to stop it, the Department of Labor’s fiduciary rule will go into effect June 9. When you read the report from Reuters below, please note that the “concerns it may make investment advice too costly” reference should be read as follows: “concerns that the diversion of fees, often undisclosed, made possible by conflicts of interest, also undisclosed, will have to stop, returning to the customers the money that should have been theirs in the first place.”

The U.S. Labor Department will implement its fiduciary rule on June 9 with no further delays, U.S. Labor Secretary Alexander Acosta said on Tuesday.

The department’s rule, which requires brokers offering retirement investment advice to act in the best interest of their customers, has been heavily criticized by Republicans and Wall Street amid concerns it may make investment advice too costly.The rule has faced a rocky time becoming effective, with President Trump last month delaying its enactment date, originally April 10, for 60 days. Trump has also ordered a review of the rule.

Acosta, in an opinion piece for the Wall Street Journal, which was also shared with Reuters, said there was “no principled legal basis to change the June 9 date while we seek public input”.

Calling the fiduciary rule a “controversial regulation”, Acosta said while courts have upheld the rule as consistent with Congress’ delegated authority, it may not align with Trump’s “deregulatory goals”.

He also said the department was seeking “public comment” on how to revise the rule, leaving open a possibility of repealing the rule in future.

Source: U.S. Labor Secretary says fiduciary rule to take effect on June 9 | Reuters

Trump Wants to Do to the Fiduciary Rule What He’s Doing to the Climate

Donald Trump and the Department of Labor are delaying — and possibly killing — the fiduciary rule, which would have required investment managers to put their clients’ interests first instead of directing them to higher-fee options that benefit the money managers themselves. The White House’s Council of Economic Advisors found that the absence of this rule imposed as much as $17 billion in additional costs to retirees led to the Obama administration’s adoption of the rule over the massive efforts by the financial firms, including political contributions and lobbying. Money writes:

The Labor Department moved to delay the rule for two months, at the direct behest of President Donald Trump. President Trump signed a memorandum earlier this year in which he publicly came out against the rule and directed the Labor Department to review the impact of the regulation.

This setback comes at a time when the rule has a lot of support. Since the Labor Department proposed the delay a month ago and asked the public for comments, more than 178,000 letters poured into the Labor Department in support of the regulation, compared to just 15,000 letters in opposition. It required all financial advisors—including brokers with major firms like Merrill Lynch, Morgan Stanley and Wells Fargo—to act as fiduciaries, or in other words, in their clients’ best interest when advising people on their retirement savings.

While retirement plan beneficiaries say that they want their advisors to be fiduciaries and refrain from self-dealing, they do not want to pay for it, that is probably because they do not realize they are currently paying $17 billion for being sold products without full information about the fees. Whatever the fiduciary rule costs would be, they would be far less — and they would be disclosed.

Proponents of the rule have promised to challenge the delay in court. Stay tuned.

Why the Fiduciary Rule is Essential for the Economy

On Feb. 3 Trump also signed a presidential memorandum instructing the Labor secretary to evaluate a specific regulation placed on financial advisers.

Known as the fiduciary rule, it requires brokers in charge of retirement plans to act in their clients’ best interest.

The rule is set to take effect on April 10, but that may not happen now. Financial columnist Terry Savage thinks the average American investor, who puts their faith and money in the hands of investors, will suffer if the safeguard is scrapped.
“This fiduciary standard was so needed,” Savage said. “Doing away with it is like saying, ‘OK, go ahead and cheat little old ladies and little old men if they retire with these rollovers and are wondering what to do with their money.’”

Will Trump kick-start the engine of investment by cutting regulatory red tape or leave Main Street investors vulnerable by ditching consumer protections?

Watch a discussion of the fiduciary standard with two of our favorite experts, Terry Savage and William Birdthistle.

Are Fund Managers Asleep at the Wheel? Which Funds Enable Excessive Pay?

Excessive executive compensation is a core contributor to America’s extreme and growing income inequality. CEOs have come to be grossly overpaid, and that overpayment is bad for the companies, the shareholders, the customers, and the other employees. The 100 Most Overpaid CEOs 2017, the third in a series from As You Sow, is designed to provide investors an overview of companies that overpay their CEOs, and a look at which pension and mutual funds too often vote to approve pay. The webinar, featuring report author Rosanna Landis Weaver of As You Sow and other leading compensation experts, will present the report findings and offer attendees the opportunity to pose questions to the panelists.

Register here.

Inside Wall Street’s War Against the Fiduciary Rule | Money

For years, many brokers have been allowed to push expensive or risky investments, even if there were cheaper alternatives, under what was known as the “suitability standard”: Investment recommendations needed only be “roughly suitable” for the client. In practice, that means if your advisor is weighing two similar investments, and one pays out a greater commission, he or she can put you in that one—even if the alternative would trim your fees and increase your overall returns.

The White House’s Council of Economic Advisers found this conflicted advice costs Americans around $17 billion a year. Put another way: If you’re a 45-year-old with $100,000 in retirement savings, you could lose $37,000 through these conflicts alone by the time you retire at 65, the Council found.

By last year, the U.S. government looked poised to start changing that. After an eight-year effort, the Department of Labor—which oversees retirement savings—developed a rule that would require any financial advisor managing a retirement account to put you in the best investments available. It’s arguably the biggest change in retirement savings law since the benchmark Employee Retirement Income Security Act of 1974.

That “fiduciary rule”—so named because it required retirement advisors to act as fiduciaries, in their clients’ best interests—was set to roll out in April. But under President Donald Trump’s administration, the fate of the new rule is now in serious doubt. On Friday, President Trump issued an executive order that directs the Labor Department to reassess the entire initiative. That is probably welcome news to Wall Street, which has waged a never-ending war around the fiduciary standard on legislative, judicial and public opinion fronts.

Source: Inside Wall Street’s War Against the Fiduciary Rule | Money

Fiduciary Rule Announced, Challenges Expected

The Department of Labor has published its long-awaited fiduciary rule

Labor Secretary Thomas Perez said,

With the finalization of this rule, we are putting in place a fundamental principle of consumer protection into the American retirement landscape: A consumer’s best interest must now come before an adviser’s financial interest. This is a huge win for the middle class…Today’s rule ensures that putting clients first is no longer a marketing slogan. It’s the law.

Ted Knutson writes:

Final may not be final for the Labor Department’s fiduciary rule for pension plan advisors both proponents and opponents of the best interest standard are warning.

While praising the standard for promising to save workers billions, Labor Secretary Tom Perez and Consumer Financial Protection Bureau founder Senator Elizabeth Warren are cautioning the rule could still face withering assaults in the courts and Congress by Wall Street financial firms and their Republican promoters in the House and the Senate.