Regulators need to forget the soft stuff and tackle matters of consequence.
Another well-intentioned and time-intensive project in the financial advice space falls short. The North American Securities Administrators Association announced last Monday it has found consensus among regulators, industry advocates and brokers themselves on a new model fee disclosure for investors. Wow. That is something to trumpet.
Until you look closer.
Frankly, hearing the industry and its overseers agreed on more disclosure should cause you to ask if you'd heard that right. You did. But the confusion is understandable. Parties that by their very nature have different and sometimes competing interests hardly ever agree on issues of substance.
This doesn't mean the two sides can't agree on the end goal or even approaches along the way, but don't expect sweeping new rules that help investors at the expense of brokerages to get brokerages' cheerful sign-off. That's the first indication this new fee disclosure is missing something big.
And what it's missing are commissions and advisory fees.
What is the focus, then? “Miscellaneous fees,” such as account maintenance fees (for postage, transfers, minimum balances, etc.), cash management services (debit cards, wire transfers, etc.) and investment fees (not from investment companies, but what the brokerage charges on these — such as for re-registration, American Depositary Receipt custody, etc.).
While it could be considered a good first step to inform investors of these often-overlooked fees that can add up to an irritating sum, focusing people's attention on such a limited part of what they ultimately will pay when investing is, at best, not useful for comparison shopping and, at worst, misleading.
If an investor has only this to go on when checking out broker websites — the working group suggests brokerages should voluntarily make these easily accessible online — a prospect might be drawn to one shop that has minimal charges for making document copies or getting a cash advance. “Oh, look, Broker X only charges $50 for an account transfer versus $100 for Broker Y. Broker X is clearly the cheaper option.” Oh, yeah? What do they charge in commissions and/or advisory fees? What do the investments they tend to put clients into cost? Not asking these question could lead investors down a much more expensive road over time than what they potentially would save in cheaper “miscellaneous fees.”
By the way, as the working group's own report says, many of these fees are negotiable anyway.
So it's nice that regulators want to make nice with the industry they oversee. And getting their input is essential. But let's not forget the role of regulators.
A SLIVER OF FEES
The Financial Industry Regulatory Authority Inc., one of the members of the working group, has a mission “to provide investor protection and promote market in-tegrity.” NASAA's website says it's “the oldest international organization devoted to investor protection.”
No doubt these groups intend to do good by calling for these disclosures. But obscuring the total cost of doing business by having brokerages voluntarily post PDFs detailing only a sliver of fees as a way for the public to comparison shop is not meeting those missions.
The United Nations, which is just a few blocks east of the InvestmentNews offices in New York, has been very busy this past week. This body never gets full consensus on issues of consequence, nor should it expect to when dealing with countries having vastly different interests. They invite everyone to the table to be heard, not to agree. If a vote ever ended with 100% of countries supporting a resolution, it would make you wonder what it could possibly be tackling: We all should love our mothers?
Regulators need to forget the soft stuff and tackle matters of consequence. Instead of aiming for consensus with relatively trivial and potentially misleading disclosure façades, regulators need to, yes, listen to those they oversee, but ultimately make the right call for those at the real heart of their missions: investors.
