Gary Cohn: Fiduciary Rollback The Kind Of Sensible Policy That Helps People Die Sooner

Financial advisers might not appreciate being compared to junk food peddlers.
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We've heard all about the difficulty Donald Trump might have fulfilling his lofty promises, from a manufacturing renaissance to Mexican-financed border wall. But that overlooks the little things Trump is already doing for his constituency. Case in point: Friday's announcement that the administration will eliminate an Obama rule that prevents financial advisers from accepting kickbacks for lousy retirement advice. Gary Cohn explained the administration's thinking to the Wall Street Journal:

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“We think it is a bad rule. It is a bad rule for consumers," said White House National Economic Council Director Gary Cohn in an interview with The Wall Street Journal on Thursday. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

The former Goldman Sachs president deserves a little slack here, seeing as this is his first major public-facing policy effort. But invoking the specter of early death probably isn't the most effective way to get people behind a policy change.

In fact, proponents of the fiduciary rule might even agree with Cohn's formulation, albeit with minor changes – namely that it's the conflicted financial advisor splurging on the junk, while it's the client's retirement savings facing an early death. The menu analogy is especially apt: Many advisers who get paid on commissions select from a literal menu of mutual funds whose sponsors pay millions of dollars to be on that selfsame menu. The kinds of practices the system encourages are not always pretty.

That's not to say there aren't legitimate gripes with the Obama administration's yet-to-be-enforced rule, whose complexities go far beyond banning kickbacks and unseemly commissions. There are innumerable carve-outs, exceptions, and caveats contained in the measure's sprawling thousand-plus pages. Some enlightened observers have even gone so far as to compare it to literal slavery.

But Cohn's comparison, odd as it may be, gets to a fundamental point of difference between advocates of Wall Street regulation and its targets: the idea that financial products should be treated just like any other consumer good. As the argument goes, purveyors of financial advice should, like grocers, have the freedom to offer consumers products that slowly kill them – or, like used-car salesmen, be allowed to lie to make a sale. The market will sort things out.

The major flaw in this line of thinking is that it undercuts the financial sector's fundamental self-justification: the efficient and effective deployment of productive capital (which also happens to be the reasoning behind loosening up Obama-era reforms). If Wall Street occupies a uniquely beneficial position in the economy, then presumably it should also occupy a unique regulatory space. That's certainly the case when it comes to FDIC insurance and banks' ability to dispense the monetized full faith and credit of the United States, i.e., coin money.

These are unique privileges granted by the U.S. government in recognition of the essential role finance plays in the economy. So it's odd when well-respected financiers equate their industry to shabby vendors who hawk sugar water to children and push lemons on unsuspecting marks.

Like any pursuit, the actual day-to-day of finance tends to fall short of the lofty rhetoric of its public champions. But it's important that Wall Street's denizens – and their clients – not fool themselves with illusions that finance is just another way to earn a buck. When bankers do indulge in that fallacy, they end up pitching a federal policy by analogizing it to stuff that literally kills people.

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