Roundup: New Conflict of Interest Rule Strengthens Retirement Security
From Experts:
John Thiel, Head of Merrill Lynch Wealth Management:
"We are pleased that Secretary Perez and the Department of Labor staff have worked to address many of the practical concerns raised during the comment period. Most important, we support a consistent, higher standard for all professionals who advise the American people on their investments. As we study the details of the final rule, we hope to continue what has been a constructive dialogue with the Department about how to implement a best interest standard effectively and efficiently for the benefit of our clients, advisors and shareholders."
TIAA:
"Putting the customer first is a core TIAA value, and we believe adhering to a best interest standard under the Department's new regulation is an important way to help more people build financial well-being…Based on our preliminary analysis, it appears the Department has gone a long way toward making the best interest standard the industry standard. TIAA supports this direction, and we look forward to reviewing the full rule."
Christopher Jones, CIO of Financial Engines, Inc.:
"From what we have heard and read and the conversations we have had with the secretary and others, I think the [Labor] Department has made sincere efforts to streamline the original rule and make it easier for the industry to accommodate to the rule and minimize the unintended consequences and cost of complying…The core elements remain focused on making sure anybody who is providing advice in a retirement context does so as a fiduciary. We think that's an unqualified win for the public and will ultimately benefit the industry, as it realigns to be more consumer-friendly."
Jon Stein – Founder & CEO of Betterment
"We support this rule for a lot of reasons. We've actually been engaged and involved with the Department of Labor and the OMB for awhile supporting this rule. It's an unambiguous public good. This is one of the most exciting things to happen for investors in 40 years."
Harold Evensky, Chairman of Evensky & Katz:
"My attitude is we live in the real world and while perfection would be terrific, I think substantively this is extraordinarily important and powerful…"
"The Financial Planning Coalition, a group of financial-planner organizations that has long supported an enhanced fiduciary standard, applauded the new rule and urged Congress not to dismantle it. ‘Based on our initial review, this rule, achieved through an inclusive, comprehensive review process, carefully balances needed consumer protections with preserved access to retirement advice,' the coalition said."
"The DOL's final rule appears to have addressed many industry and investor concerns by significantly revising some of its most contentious provisions while retaining its fundamental commitment to ensuring the integrity of the advice to retirement investors. In light of our earlier concerns, CFA Institute is particularly pleased to see clarifications to what educational information can be provided to investors without triggering the requirements relating to providing 'investment advice.' We also believe that streamlining the application of the Best Interest Contract Exemption (account opening statements, vastly reduced disclosure obligations, notifications to existing clients) goes far in responding to industry concerns about potentially burdensome compliance aspects and costs. In the end, we believe this is a balanced 'win' for investors and for advice providers, and one that will ultimately raise the level of market integrity."
Robert Bilkie, President of Sigma Investment Counselors:
"Clearly, we are supportive of a uniform fiduciary standard. This raises the bar in terms of doing right by the client and as a result, may curb certain sales practices."
Andrei Cherny, CEO, Aspiration:
"I've seen first-hand that the wheels of government can move slowly – especially when there are thousands of lobbyists and many millions in campaign contributions working against progress. But the new fiduciary role from the Department of Labor is a big step in the right direction. The financial industry is one of the least trusted in America – for some very good reasons. Too often, conflicts of interest lead to a 'heads I win, tails you lose' game where people's very livelihoods are on the line."
"…which provides brokerage services to more than 14,000 independent advisers, said it was pleased with the Labor Department's changes to the fiduciary rule. ‘In particular, we are encouraged by the increased time frame for implementation, the ability to easily enter into the best interest contract with our existing clients, and the freedom to recommend any assets that are appropriate to help investors save for retirement,' LPL said."
Jared Bernstein – Center on Budget and Policy Priorities, former Chief Economist and Economic Adviser to Vice President Biden:
This new rule, as I've written before, requires financial advisors providing advice on retirement accounts (and 401(k)'s that will ultimately get rolled over into such accounts) to put their clients' interests ahead of their own. Boom. That's it. Now, you may have thought that's what happens already, and with many ethical advisors, it surely is. But before these new regs, brokers could and did nudge retirement savers to investments with higher fees or a broker's commission that did more for the advisor than the advisee. Now, these financial advisors must meet a ‘fiduciary' standard, meaning they ‘cannot accept compensation or payments that would create a conflict unless they qualify for an exemption that ensures the customer is protected.'…This is one of the administration's biggest wins for middle-class people trying to do the right thing and save for their retirement.
From Consumer Groups
"Overall, we think it's a very good day for consumers. We know how important retirement security is to our members. They have tremendous economic anxiety and the step that is being taken today is going to relieve them of that anxiety. They can know they are getting advice that is the best for them and not for the person selling them their products."
Barbara Roper, Consumer Federation of America:
"From our point of view, a rule that preserves the core protections but is easier for industry to implement is a win for everyone. We want financial firms to be able to operate under the best interest contract exemption. The changes that the DOL has made to make the contract easier to implement…really should address some of the industry's biggest complaints about the workability of the rule."
75 Civil Rights and Consumer Groups:
While we will carefully review the details of the rule in the coming days, our initial assessment is that it will at long last require all financial professionals who provide retirement investment advice to put their clients' best interests ahead of their own financial interests. By taking this essential step, the rule will help all Americans — many of whom are responsible for making their own decisions about how best to invest their retirement savings — keep more of their hard-earned savings so they can enjoy a more financially secure and independent retirement.
In the News:
Bloomberg: Conflict of Interest Rule Could Save Americans Billions in Retirement
When it comes to retirement planning, it's not just about how much you save, but with whom.
A new Labor Department rule announced Wednesday will require brokers to put clients' interests ahead of their own when it comes to retirement investments, tightening current industry standards that can incentivize brokers to push high-fee products that prioritize their own profits.
The shift could save billions of dollars annually for investors, who increasingly hold their money in self-directed individual retirement accounts as opposed to defined benefit plans or 401(k)s, according to a separate White House Council of Economic Advisers analysis issued last year.
The Bulletin (Oregon) - Editorial: Rules for investment advisers are common sense
It's common sense that when Americans seek investment advice for retirement, the people they pay for the advice should work for them.
Financial advisers need to be trusted partners, like your doctor or your lawyer. They should be serving their clients' best interests.
New rules from the Labor Department are based on that common sense. The rules apply to advisers on retirement accounts and not other types of investments.
In the past, advisers only had to offer advice that was ‘suitable.' That could mean recommending investment options with high fees for the adviser or investments that the adviser's institution was pushing. It could make a big difference when people roll over 401(k)s into individual retirement accounts. There are trillions of dollars involved in those investments. And advisers could be steering people into options with higher fees.
The new higher standard is that the advisers must act as ‘fiduciaries' and that they must serve their clients' ‘best interest.' ...
… People should be able to trust the person they are paying for retirement advice. And with so many Americans saving so poorly for retirement, this should at least help those who are to keep a bit more money for themselves.
Reuters: Mark Miller: Best-interest standard is a game-changer for IRA rollovers
…predatory marketing underscores why the conflict-of-interest rule unveiled on Wednesday by the U.S. Department of Labor is so badly needed. The rule will impose fiduciary requirements on stockbrokers, requiring that they act in the best interest of clients whenever a tax-advantaged retirement account is involved (taxable retail accounts are not affected directly by the new rule).
The idea that investment advisors owe a higher duty to their clients than to their own pocketbooks is an old one, often detested by Wall Street.
So the announcement Monday from the White House that it will impose such a standard on advisors in the individual retirement account and 401(k) business may be a big step forward…
When it comes to Americans' retirement accounts, the issue is especially urgent. Since the 1970s, Americans' retirement resources have shifted inexorably from accounts managed by professional investment advisors -- defined-benefit plans in which any investment shortfall has to be made up by the employer -- to those managed by the workers themselves.
…the clear winner…is certain to be investors and consumers. And the sky — despite claims to the contrary by those in the advice/product industry/profession — will not fall.
Forbes: Three Cheers For The New Rule Protecting Retirement Investors
The old, high commission system that forced poor products through has got to go, even if it causes pain to those who have been abusing Americans depending on their modest savings and hoping for secure retirements. As Labor Secretary Thomas Perez said in announcing the rule: "This is a good day for Main Street and for the middle class of America."
Detroit Free Press: New rules to shine more light on hidden retirement fees
Retirement savers — who increasingly don't have the security of a pension — too often have been left in the dark about the kind of money they're handing over for commissions, advice or high-cost products. Some would argue that a major part of the financial services industry is built on hiding all those fees.
On Wednesday, the U.S. Department of Labor finalized a rule some advocates predict could save consumers tens of thousands of dollars over their lifetimes.