June 15, 2017

James D. Wheddle
Managing Partner
Edward Jones
12555 Manchester Rd
St. Louis, MO 63131

Ronald J. Kruszewski
Chairman and CEO
Stifel, Nicolaus & Co., Inc.
One Financial Plaza
501 N. Broadway
St. Louis, MO 63102

Dear Messrs. Wheddle & Kruszewski:

We are writing this “open letter” to you in your capacity as leaders within the retirement advice industry and as known critics of the Department of Labor’s (DOL’s) new “fiduciary rule,” which, as you know requires financial advisers to offer advice that is in their clients’ best interests. Time reports that Edward Jones is the largest single donor to Rep. Ann Wagner (R-MO), who has been on the war path against the fiduciary rule for quite some time. Stifel’s letter to the DOL this year blasted the rule claiming, among other things, that the rule “forced [them] to deliver confusing information to their Advisors and Clients alike, undermining investor trust and confidence.” Both companies are major players in the industry. The website Credio reports that Edward Jones has over one million clients and over $200 billion assets under management. And Stifel, according to its 2016 annual report, is “one of the nation’s largest full-service investment firms.”

Before the fiduciary rule, which took effect in large part on June 9, 2017, financial advisers were permitted to give advice that favored their own interests over the client’s. The law required only that financial advisers offer “suitable” investments, which enabled advisers to effectively act as mere salespeople, not fiduciaries. Insofar as the adviser’s self-interest in making money conflicted with the client’s interest in enjoying a reasonable return on investment, this created a clear conflict of interest and the adviser’s advice would, under these circumstances, appropriately be considered “conflicted.” As you know, President Obama’s White House Council of Economic Advisers revealed that conflicted advice costs working and middle class families $17 billion per year.

The industry has challenged this White House study, saying that $17 billion per year is an exaggeration, but this is a distraction from the more important point, namely, that there is ample evidence that conflicted advice is bad for consumers; no one can credibly dispute that.

The most popular industry argument, it seems, against the fiduciary rule is not that conflicted advice does not harm consumers, but rather, that requiring financial advisers to uphold a fiduciary standard means that firms will have to earn money another way, namely, by jacking up fees, which will have the effect of costing clients more and/or of pushing “smaller savers” and lower- or moderate-income savers out of the market, or by establishing asset thresholds that will exclude smaller savers. Edward Jones recently announced that it would roll out a new account option that would comply with the fiduciary rule and still include commission-based options. Stifel announced in November 2016 that it will continue to pay commissions as part of an effort to take “a balanced approach which preserve[s] choice while recognizing new fiduciary requirements.” Further, Mr. Kruszewski stated during a Third Quarter 2016 Earning Call that “while much of the industry is raising costs and pushing out smaller accounts, we have lowered many of our minimums and welcome the opportunity to provide early savers with professional advice.” These announcements suggest that the rule will not, in fact, push out smaller savers and lower- or moderate-income savers.

Even if you choose to alter your business model in a way that disadvantages certain savers, we, like other proponents of the fiduciary rule, believe clients who get dropped by firms or get priced out of a particular firm will be picked up by other firms that can serve the client in a way that is both profitable to the firm and safe for the client.

As you may know, the U.S. House of Representatives recently passed the Financial CHOICE Act (H.R. 10), which would repeal the fiduciary rule and critical measures of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Proponents of the CHOICE Act argue that it would preserve smaller savers’ and lower- or moderate-income savers’ access to retirement investment advice. Put another way, it would preserve their access to conflicted retirement advice, which, as you know, has been found by experts, in addition to President Obama’s White House Council of Economic Advisers, to be harmful. On behalf of smaller savers and lower- or moderate-income savers, thanks but no thanks. Permitting financial advisers to offer advice that lines their own pockets at the expense of their clients is not a regime worth preserving.

If you would like to speak to me, please call me at 312-368-0310. You are also welcome to contact me in writing. My e-mail address is drand@woodstockinst.org, and our address is 29 E. Madison, Ste. 1710, Chicago, IL 60602.

Thank you for your time and attention.