Obama, who I have nothing against, recently endorsed the
During remarks to the
“The challenge we’ve got is right now there are no uniform rules of the road that require retirement advisors to act in the best interests of their clients, and that’s hurting millions of working and middle-class families,” Obama said in his address.
Did it ever dawn on the president that a large percentage of the folks providing assistance to retirement plan participants are also members of the same “middle class?”
During the 2007-09 financial meltdown, where was the consumer concern?
Insurance companies, for decades have marketed high-cost, high-surrender charges and low-performing annuity products to educators. Where was the outrage over these vehicles, called tax-sheltered annuity accounts, or TSAs? Did anyone ever call fixed annuity providers to task? Apparently, Obama’s plan does not focus on these investment products.
I recall a meeting with an insurance company president some years ago. I asked him why TSAs had such historical low return to savers. His response was, “A 1% savings account is far better than none at all.”
Obama’s proposal seems to rest on the belief that investments always will go up. If they don’t, then the brokers selling them are at fault. “There are a lot of very fine financial advisors out there, but there [are] also financial advisors who receive back-door payments or hidden fees for steering people into bad retirement investments that have high fees and low returns,” Obama told the
Let’s see if I have this right. As long as the value of the retirement plan assets increase, it’s good. However, if the plan assets decrease in value the broker or advisor is to blame? Oh, and if, God forbid, the broker or advisor received any payment or compensation, he’s surely guilty of something.
And if our supposedly evil broker sold a 401(k) participant an investment with high fees and commissions, who do you think designed the product for sale in the first place? Not the broker. If an industry-wide defect exists that harms retirement investors, why not fix it from the top down, not the bottom up?
At its core, the proposed rule would require retirement advisors to make recommendations and investment decisions that are in the best interest of clients, known as the fiduciary obligation. That is a tighter requirement than the suitability standard, which brokers historically have operated under. With suitability, they must reasonably believe an action is in the customer’s best interests.
Trouble is, the division is not so neat. Many brokers are dual registered, meaning they also operate under the fiduciary standard. Large numbers of them have earned the Certified Financial Planner designation, and that mandates that they act as fiduciaries. And the majority of brokers are not working for large firms, and thus do not have house brands of mutual funds to sell.
The proposal does not aim to do away with sales commission, which are how brokers traditionally get paid. But if commissions are the problem, why not outlaw them? Of course, they’re not the problem, but Obama’s logic doesn’t hold up by vilifying them and then giving them a pass.
Several industry trade groups issued statements expressing concern with the rules.
“People should be protected from unfair and deceptive practices,”
If a retirement plan participants feel they can go it alone, they are free to make their own choices. The outcome will be a product of luck and their own knowledge. However, if one requires assistance in the selection and management of a diversified retirement portfolio, the advisor must receive fair compensation. This is true for a plumber, electrician, accountant or attorney. If they would rather perform these functions on their own, there’s always Home Depot.
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Phillip Q. Shrotman is founder and president of
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