Christine Benz: Hi. I'm Christine Benz for Morningstar.com.
We're joined here today by Jason Zweig. He is personal finance columnist for The Wall Street Journal. He is also author of several books about money and investing.
Jason, thanks so much for being here.
Jason Zweig: Sure. Thanks, Christine.
Benz: So we've recently seen a lot of financial regulatory reform, and there is the creation of a new Consumer Financial Protection Bureau with a new leader.
Benz: I'm wondering if you have any thoughts about what that person, Elizabeth Warren, should be focusing on as she sets that bureau's agenda.
Zweig: Well, aside from preserving her own sanity from massive information overload and also from – sort of from "mission creep," as they call it in Washington, I think there are few areas that are well worth exploring.
One is the massive proliferation of professional credentials in the financial planning profession. And I paused as I said "profession" because one of the problems with financial planning in the U.S. is that unlike medicine or law or accounting or dentistry, there is no one universal standard. If you go to your doctor, typically you'll see on a business card so and so, M.D. – period, done.
Benz: You have a sense of what that means and what the person has been through to earn that M.D.?
Zweig: Exactly. So, M.D., that must stand for Medical Doctor, and my doctor must be a Doctor of Medicine.
Zweig: But when you go see a financial planner, you could see CFP, you could see CPA PFS, you could see CSFP, you could see CRFA, you could see CWM, you could see countless, countless initials after that person's name, and there is no universal standard. There is no official licensing requirement. And one of the difficulties we have is over the next five years, something like 9 million Americans will reach the age of 55, and those people are going to be in more intensive need of financial planning advice than they ever have been before in their lives.
Research in behavioral economics shows that decision-making ability in financial matters peaks around the age of 53. So we're all losing half a step as we reach the age of 55. And furthermore, financial planning decisions are now vastly more complicated than they've ever been before.
So, you have millions of people needing advice, slightly less able to process and manage the advice they get, and having no clear guidance on who the right person is or what the right credential is to get it. That's certainly something I would suggest tackling, because it hasn't really risen to a high level of awareness in Capitol Hill.
Benz: Another sort of more micro question in terms of regulation is revisiting of Rule 12b-1. So the SEC a few months ago put forth an idea for revising 12b-1. Can you give your take on that proposed rule?
Zweig: Oy vey! 12b-1 is sort of the – how would you describe it? It's sort of like they the crazy aunt in the attic everybody wishes would go away. It was originally designed as a way to enable no-load mutual funds to survive at a time when they were in danger of going out of business entirely. Some of the leading no-load firms in the country approved of the idea, even though most of them never ended up actually using it. It's ended up being used by the fund industry in ways that weren't exactly contemplated when it was proposed.
The SEC proposal is interesting. I think it introduces a strange idea, which is that the maximum cumulative amount of the 12b-1 charge, the fee, over time can't exceed what an investor would have paid if they had just gone in the front door with a front-end sales charge. That I think sounds like a better idea than it may actually be in practice, because you end up penalizing certain kinds of 12b-1s at the expense of others and you're picking winners among 12b-1 fees.
The solution I would actually favor, which the fund industry hates and the SEC doesn't care for very much because it would require congressional approval, is I would just take a meat cleaver to the whole thing.
Benz: To the whole share-class structure as it is currently?
Zweig: Right. And what I would do is I would repeal what's called Section 22(d) of the Investment Company Act of 1940, which is the mutual fund law, federal law. That's the so-called retail price maintenance requirement rule that says that mutual fund sales charges are not negotiable, by law.
Now, to me, it makes 100% no sense why to trade a stock at Fidelity.com would cost to me, say, $7.95, but if I went to a human broker at Merrill Lynch, it might cost me $65. So I don't know why a stock commission is negotiable when a mutual fund commission is not. I would just chop the whole thing and I would just say, if stock commissions are negotiable, fund commissions should be, too.
Benz: So it should depend on the level of advice and service that you are getting if you feel you are getting a higher level of service you may be willing to pay more, if you are not…
Benz: …you'd want the rock-bottom cost. Well, Jason, it's always terrific to hear your insights. We appreciate it.
Zweig: Thanks, Christine.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.