Mon Feb 23, 2015 at 07:58 AM PST
There's a loophole in the law on financial advisors that's costing
consumers $17 billion a year, money that is going into the accounts of
said financial advisors instead of the retirement accounts of the people
they're supposed to be helping. President Obama is teaming up with Sen.
Elizabeth Warren (D-MA) to
close that loophole.
The two are speaking at the Washington offices of the AARP Monday,
announcing a new Department of Labor rule to make financial advisors to
receive fees for their investment advice to individuals abide by the
"fiduciary rule." That means that financial advisors would be required
to act in their clients' best interests. Right now, they're covered
under a much more lenient "suitability standard," that just says they
have to give recommendations that they reasonably believe are suitable
for that customer. What's the big deal? The big deal is that they can
give that advice when they have a conflict of interest—they can get
back-door payments from the providers of the investment products they
recommend. So that great fund they're pushing you to invest in might not
be the very best product for you, but they're essentially getting a
commission when they steer you into it. The new regulations would
put these investments under the fiduciary rule.
What will that mean in practice? When workers or retirees
rollover their savings accounts, typically 401(k)s, into IRAs, brokers
will generally not be able to recommend products that give them a
kickback but diminish the clients long-term yield. The new fiduciary
standard should block what honest brokers call "over-managing:"
unnecessary rollovers, churning (over-active buying and selling that
generates brokers' fees at the expense of returns), and the pushing of
expensive and risky products like variable annuities.
Not surprisingly, Wall Street, the U.S. Chamber of Commerce and
lawmakers from both parties are gearing up to fight the rule. David
Dayen
points to a a
letter
the Securities Industry and Financial Markets Association, a large
trade group, got 183 members of Congress to sign, "including 118
Democrats, attacking the Labor Department rule." You can expect a
Republican Congress, with the help of some Democrats, to act swiftly to
try to find a way to block or blunt these rules.
The Department of Labor
has created a website where you can read more background about the proposed rule and how to protect retirement savings.
Originally posted to Joan McCarter on Mon Feb 23, 2015 at 07:58 AM PST.
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