The “Fiduciary Rule” and freedom from investment industry voodoo

My take on the “fiduciary rule,” which was subject to the president’s pen today: A financial advisor is someone who is in the business of advice-giving, and that advice should rationally be in the best interest of clients. Although I feel strongly that advisors should be fiduciaries, I don’t think we need a law to require it, and I will explain why.

As evidenced by the market share gains of index funds over active funds, as well as booming business using “robo-advisors,” clients KNOW they are being had regularly by the investment advice industry. They simply take their money and leave! No need for a law as long as other choices exist, and people have access to them. 

What I would far prefer to see regulators take on is the NEED for a 401k or IRA to begin with. In order to ACCESS retirement accounts (the types that offer tax-advantages), we must do so by utilizing these accounts, which are riddled with catch-22’s, limits on withdraws, limits on access if your employer doesn’t offer one, and on and on and on.

Here is a simple rule that will open up the investing future for everyone, offer much more freedom, increase savings rates, lower fees broadly, and it won’t require any regulatory agency, compliance officers, or even an advisor. Simply let everyone in the country save up to a certain limit every year (indexed to CPI), and offer a simple tax-deduction taken on the 1040.

Currently, we can save $18k in a 401k/403b, $5,500 in an IRA, and there are others like SEP IRA’s, SIMPLE IRA’s, TSP’s (military) and 457 plans (government-only). No need for any of these. Set up a regular brokerage account with schwab, scottrade, TD ameritrade, Vanguard, Fidelity, etc. Put your own money in there and invest it. Then at the end of the year, write off the amount you contributed that year across your accounts. No tax on the dividends or capital gains. Super simple. Also you have access to the money whenever you want it. No need for fancy Roth-conversion ladders or SEPP withdraws for early retirees. No 10% tax penalties. No nothin.

Right now, today, the total contribution allowed in a 401k plan is $53,000 (that includes employee and employer contributions. Bet you didn’t know that, because only highly compensated people normally get access to that much employer money. If you have your own business, you can contribute for yourself as an employee and employer! Then you can also do the IRA thing, which is $5,500. So add those two together and you get $58,500. That should be the amount we can all save each year (double for married people), without any taxes. You just take the deduction, like anything else. Done and done. Say goodbye to the whole stupid retirement account racket.

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