GOP Rep. fights to enable junk fee gouging by financial advisors
“If men were angels, no government would be necessary” — James Madison (Federalist 51)
The GOP has long been a fan of gouging the consumer. Rep. Ralph Norman (R-SC) is continuing the tradition. On Tuesday, he introduced an amendment to the Labor, Health and Human Services, Education, and Related Agencies Appropriations Act, 2024 (H.R. 5894) prohibiting the Department of Labor from spending any money to crack down on junk fees in retirement investing. Why? He claims it would result in higher costs for Americans.
It makes sense to him.
Following is a transcription of his remarks. He starts with a vocabulary problem,
"Mr. Speaker, I still didn't hear the definition of a junk fee."
Fair enough. However, defining 'junk fee' should not present an insurmountable problem. After all, laws have been able to define murder, rape, and all manner of assaults on the individual.
Next, he whines that the government is trying to help people.
"You've got a politician and bureaucrats in the Labor Department, restricting what commissions brokers who are in a competitive business can charge to willing buyers. And again you have government who is trying to tell … to restrict commissions on funds and annuities they can provide to savers."
Norman may not like it, but that is part of what governments do. The Code of Hammurabi — written almost 4,000 years ago — has a lot of rules governing commercial transactions. As does the Bible.
He then ventures into Alice in Wonderland territory.
“Currently, this compensation practice is disclosed to investors and enables brokers to charge less because of the additional compensation. The White House fact sheet does not dispute that fees may actually increase as a result of this rule. This proposal is misguided and risks creating confusion in the marketplace, unwarranted compliance expenses, and instability the retirement plan retirees and savers.”
To say that brokers can charge less by charging more, has Orwell kicking himself for not thinking of it. I do not know what the White House fact sheet says. But I feel confident it does not say what Norman says it says. How capping fees causes confusion in the marketplace and instability is anybody's guess. And if the industry has to spend some money (which they got from their customers anyway) to ensure they are not gouging, I will not shed a tear.
Norman then argues that the free market will lead to fiscal morality.
“Again this is done voluntarily on who you deal with. It's a competitive business.”
Nice try. It would sound better if the financial industry was not littered with countless con artists making mint with endless streams of gouging schemes. I am not referring to only the minor-league crooks but also the Fortune 500 types. The behavior of large financial firms is so egregious they have been fined billions — occupying 8 of the top 10 positions on the shit list. Yet they make so much money they are still wildly profitable.
As bad as Norman has been so far, he gets worse. He dismisses politicians on the grounds they have no real-world experience. But that is the nature of politics. How many Republicans who deny climate change and evolution have been scientists?
“And yet again you have politicians who have probably never been in the workforce. And bureaucrats trying to dictate what they are.”
Where Norman truly loses the plot is his demand we instead listen to industry insiders.
“Don't take my word for it. Listen to the experts who serve in the industry — that actually work in the industry. According to the American Council of Life Insurers, a fiduciary-only regulation would shut off access to import retirement tools and hurt the very people the regulation intends to help. The National Association of Insurance and Financial Advisors is concerned this proposal has the effect of substantially reducing consumer access to investment. And create a substantial advice gap for potentially millions of individuals, who need professional guidance to understand and make investment decisions — their own decisions, without government interference on their retirement accounts.”
My advice is not to listen to the fox when designing henhouse security systems. Norman, on the other hand, thinks predators should be granted carte blanche — the prey be damned.
Norman also destroys his own point. At the beginning of his polemic, he claims people are sophisticated enough to make their own choices. Yet now he argues that people need financial advice because they are not experts.
While Norman took a break from abetting bad actors, Rep Rosa DeLauro (D-CT) entered into the congressional record a story of a broker who took a retired couple’s $150,000 retirement savings and put it in a complex financial instrument. The results were not optimal. The couple lost 20% of their money. But the broker pocketed $15,000. Which DeLauro categorized as a ‘junk fee’. Saying,
“Bad advice which denies good savers a return on their investment is a junk fee.”
I think we can come up with a more robust definition of junk fee. But this is a good placeholder. And it addresses Norman’s vocabulary concerns.
Norman winds up his defense of cozeners by saying not everyone is a victim.
“I close with the fact that my good friend from the left points out one example. What about the millions of people who are profitable. That used to get into the stock market. That choose their broker. They choose to pay the so-called junk fees, that politicians shouldn't get involved with.”
Following that logic, we should get rid of laws against murder, as most people are not murdered.