Brokers won their fight against the controversial fiduciary rule. Now, a battle is brewing over a new proposal by securities regulators that would require them to cut back on sales incentives tied to customer advice.
The battle with the Securities and Exchange Commission will play out in 2019. Major brokerages including Morgan Stanley, Bank of America’s Merrill Lynch and Fidelity Investments are pressing the SEC to let them maintain current broker pay practices, arguing the plan could limit the products and services they provide.
SEC Chairman Jay Clayton, meanwhile, is staking his legacy on changes that would require more broker disclosures and limit sales incentives.
The proposal says that brokers should avoid “compensation incentives for employees to favor one type of product over another” and suggests pay for brokers be based on “neutral factors” such as the amount of time and complexity of the work involved. Brokers claim such a system could put their business model at risk.
.. The industry is hopeful Mr. Clayton’s statements mean the SEC won’t force brokers to eliminate all forms of variable compensation, but instead boost disclosure of pay arrangements and weed out some extreme practices such as sales contests.
.. Most brokerages pay their employees more for selling certain products over others, depending on how lucrative they are. This practice can result in customers paying more for products and services than they need to, though brokers defend the practice as the only way to reasonably offer a range of investment options. Without assurances their pay practices comply with government regulations, investment firms say they could stop offering certain products to avoid possible legal liability... To advocates of a tougher rule, pay incentives call into question whether a product is being presented to a customer for their benefit or for the broker’s.“Brokerage firms artificially create all sorts of perverse incentives to encourage brokers to make certain recommendations that are very profitable for the firm and the broker, even if they aren’t really good for the customer,” said Sen. Elizabeth Warren (D., Mass.) at the December hearing.
Beyond flipping, Trump addresses Michael Cohen’s charges by repeatedly emphasizing that the hush money payments at the center of his guilty plea were not made with campaign funds. There’s just one problem: That doesn’t exonerate him.
In context, Trump appears to be trying to say that this proves his innocence, but the opposite is the case — you can’t just evade campaign finance rules by paying for your campaign expenses with non-campaign funds. If you could, the rules would be meaningless.
.. A separate issue, however, is that while a private citizen is free to make a secret hush money payment to his former mistress if he likes, a political campaign is required to disclose what it’s spending money on.
.. If Trump had reported a cash payment to Stormy Daniels to the Federal Election Commission, that naturally would have raised questions about why he was paying her and somewhat defeat the purpose of making hush money payments in the first place. So what Trump and Cohen seem to have decided to do is avoid using campaign money, thus allowing them to avoid disclosure rules.
.. But just like lying on the disclosure form would be illegal and refusing to do the disclosure would be illegal, paying for campaign expenses out of a non-campaign account and then declining to report that as a contribution to the campaign is also illegal. Simply put, there is no legal way to spend money on your election campaign without disclosing that fact.
his failure to include the full value of Cadre in his filing may have allowed him to hold onto most of his interest rather than divest. Additionally, the company may not have been as attractive to investors attracted to the company’s White House ties.
.. Left-wing billionaire George Soros was one of the initial investors of the project, who reportedly opened up a $250 million line of credit between his offices and Cadre.
.. Cadre could result in a benefit to him and there’s no way for us to have any insight or to hold him accountable
Shortly after his inauguration, President George H. W. Bush counseled freshly minted White House appointees that, “It’s not really very complicated. It’s a question of knowing right from wrong, avoiding conflicts of interest, bending over backwards to see that there’s not even a perception of conflict of interest.
.. By holding themselves to the same exacting standards as the rest of the executive branch, they sent a clear message to those serving under them.
.. This tradition came to an abrupt stop with President Trump. By continuing to hold onto his businesses and effectively advertising them through frequent visits to his properties, our leader creates the appearance of profiting from the presidency. As things stand, we can’t know whether policy aims or personal financial interests motivate his decisions as president. Whatever his intentions may be, the resulting uncertainty casts a pall of doubt over governmental decision-making.
.. Every past administration actively supported O.G.E.’s work and respected it for taking stands when necessary. That White House support provided the office with the leverage it needed to fulfill its mission.
.. The Office of Government Ethics has been performing the same service it has always provided with respect to the current administration’s nominees. In fact, I have succeeded in moving President Trump’s nominees on average almost a week (six days to be exact) faster than I moved President Obama’s nominees during the last presidential transition, without compromising O.G.E.’s high standards. I am particularly proud of this accomplishment because this administration’s nominees generally hold far more complex financial interests than the last administration’s nominees, a circumstance that would normally be expected to slow O.G.E.’s work.
A White House lawyer made the extraordinary assertion that “many regulations promulgated by the Office of Government Ethics (‘OGE’) do not apply to employees of the Executive Office of the President.”
Appearing to echo this view, the Office of Management and Budget challenged O.G.E.’s authority to collect routine ethics records.
Even some presidential nominees have pushed back against ethics processes with uncommon intensity.
.. the very official charged with responsibility for White House ethics, the counsel to the president. His office recently ginned up ten unsigned, undated waivers, many of which seem intended to have retroactive effect, raising the specter of a possible effort to paper over ethics violations. Worse, the counsel appears to be both issuer and recipient of two waivers.
.. Defenders of the status quo also seem unwilling to acknowledge the existence of a problem absent clear evidence of significant violations. This argument risks legitimizing an approach of bare minimum legal compliance. The existence or absence of identified violations is not the only measure of an ethics program — no program can detect every violation and those detected are often hard to prove.
.. Those systems depend on adherence to ethical norms.
.. Recent experiences have convinced me that the existing mechanism is insufficient. The Office of Government Ethics needs greater authority to obtain information from the executive branch, including the White House. The White House and agencies lacking inspectors general need investigative oversight, which should be coordinated with O.G.E.
.. Because we can no longer rely on presidents to comply voluntarily with ethical norms, we need new laws to address their conflicts of interest, their receipt of compensation for the use of their names while in office, nepotism and the release of tax forms.
.. Disclosure requirements can be refined and the revolving door tightened.