October 1, 2015
Why Wall Street Is Howling Over The Big New Reform Coming Down The Pike
Talking Points Memo, Tierney Sneed
The Obama administration is moving forward with a plan that could bring a sea change to how retirement advisors must treat their clients, while financial industry-allies in Congress engage in another round of push back. The new rules for retirement advisors that the President and consumer advocates are pushing address a conflict of interest the White House estimates costs retirement savers $17 billion annually. The problem? Contrary to what many investors believe, the advisors who direct them to retirement funds are not always required to act in their clients’ best interests. People have incentives to push people in products that might not be the best for them, and when we’re talking about longterm retirement savings even a small difference can make a big impact in the longterm retirement savings,” Anne Tucker, a professor at Georgia State University College of Law, told TPM. Due to decades-old loopholes in the current law, retirement advisors can direct their clients towards investments that compensate the advisors but are not the best option for the investor. This higher standard of responsibility is known as a “fiduciary duty.” “The way broker-dealers are often compensated is they get a percentage of retirement investments in vehicles in which their clients select, so they have incentives to place their clients or their customers in certain products that they get compensated for,” Tucker said. “The idea is this conflicted advice costs individuals because they may be being encouraged to invest in vehicles that are higher fees, or may not produce the same longterm returns on their retirement investment.” … The heavy pushback the Obama administration has received on the Hill reflects the kind if impact the regulations will have on the industry, as well as individual investors. John C. Bogle, the founder and former chairman of the The Vanguard Group, told attendees at a June speech, “The proposal of this simple ‘putting investors first’ standard is being opposed with a vengeance that I’ve rarely witnessed.”
Read the full Talking Points Memo article by Tierney Sneed here.