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American Funds - DOL Fiduciary Rule Commentary 4/7
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New Dept. of Labor rules may spur more low-cost investments
Apr 7, 2016 | CNBC
By Bob Pisani
- New rule could spur more low-cost investments. Article suggests the rule would serve as a wake-up call for investors to move money into lower-cost products like ETFs. - Competitors mentioned include: Vanguard Investors -Third parties quoted or mentioned include: Todd Rosenbluth, S&P Capital IQ; SPDR S7P; -
Vanguard, Fidelity bank on robos, low-cost strategies to ride DOL fiduciary rule wave
Apr 7, 2016 | Investment News
By John Waggoner
- What the fiduciary rule means to mutual fund competitors Vanguard and Fidelity - both companies have been actively practicing consumer-first asset management for several years. - Competitors: Competitors mentioned include Vanguard Investors and Fidelity Investors. - Third parties quoted or mentioned include: Dan Wiener, editor of The Independent Adviser for Vanguard Investors; Steve Austin, spokesman; Jim Lowell, editor of Fidelity Investor newsletter. -
U.S. Softens New Retirement Rule
Apr 6, 2016 | Wall Street Journal
By MICHAEL WURSTHORN, ANNA PRIOR and YUKA HAYASHI
-Changes to the proposed fiduciary rule tempered its impact and the negative reaction from Wall Street but the industry was not unanimous in its revised assessment of the new rule, which is still being harshly criticized by some. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: John Thiel, head of Merrill Lynch ; Adam Antoniades, President, Cetera Financial Group; Securities Industry and Financial Markets Association; The U.S. Chamber of Commerce; Mercer Bullard, professor, University of Mississippi; Secretary of Labor Thomas Perez; Rep. Carolyn Maloney, (D) NY; Options Clearing Corp; John M. Matovina, president and CEO, American Equity Investment Life. -
They Want Your IRA
Apr 6, 2016 | Wall Street Journal
By WSJ Editorial Board
-The Journal's Editorial Board argue that despite newly announced changes, the DOL's fiduciary standard will hurt investors by placing onerous restrictions on the financial industry. The editorial characterizes the rule as a capricious aggrandizement of financial authority by the government. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: President Obama; Secretary of Labor Tom Perez; Senator Ron Johnson, (R) Wisconsin; Senator Elizabeth Warren, (D) Massachusetts; -
Did the DOL Gut the Fiduciary Rule, or Save It?
Apr 7, 2016 | WealthManagement.com
By David Armstrong
-Consumer protection groups and some within the finance industry say that in trying to facilitate the smooth passage of the fiduciary rule, the DOL may have completely defanged it. Some, however, point out that even the newly weakened rule is progress and could be instrumental in paving the way for future regulations. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: Joshua Brown, CEO, Ritholtz Wealth Management; Thomas Perez, Secretary of Labor; Morgan Stanley; Knut Rostad, head of the Institute for the Fiduciary Standard; Knut Rostad, head of the Institute for the Fiduciary Standard; John Anderson, head of practice management for SEI Advisor Network; Barbara Roper, director of investor protection, Consumer Federation of America; -
Vanguard CEO 'encouraged' by efforts to revise retirement advice rule
Apr 7, 2016 | Reuters
By Trevor Hunnicutt
- Reuter’s Trevor Hunnicutt quotes Vanguard’s CEO, Bill McNabb, as stating that the DOL took “important steps to establish meaningful protections for retirement investors while making the final rule more workable.” - Competitors mentioned include: Vanguard Group - Third parties quoted or mentioned include: Bill McNabb, Vanguard Group Chief Executive. -
Fiduciary Rule Shows Washington Compromise Can Still Happen
Apr 7, 2016 | PlanAdviser
By John Manganaro
- While the rule isn't perfect, PlanAdviser highlights that overall many key stakeholders are pleased with the outcome, noting that Labor Secretary Perez listened carefully to criticism and reshaped some of the most controversial elements of the new fiduciary rule. - Competitors mentioned include: Russell Investments - Third parties quoted or mentioned include: -
SIFMA’s Bentsen: DOL Rule Will Have Unintended Consequences
Apr 7, 2016 | ThinkAdvisor
By Bernice Napach
- While SIFMA is still studying the rule, it believes the rule will have dramatic intended and unintended consequences for investors and the firms that serve them. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: SIFMA President Ken Bentsen; Financial Services Institute CEO Dale Brown; Jeffrey Zients, director of the White House National Economic Council; Michael Kitces, director of research for Pinnacle Advisory Group; SEC Chairwoman Mary Jo White; Jim Weddle, managing partner at Edward Jones -
Most Reacting Positively to Fiduciary Rule
Apr 7, 2016 | PlanAdviser
By Rebecca Moore
- PlanAdviser discusses the positive reaction to the rule by various industry groups, financial institutions and other relevant third parties. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: U.S. Senator Ben Cardin (D-Maryland), a member of the Senate Finance Committee; Nancy Zirkin, executive vice president and director of policy at The Leadership Conference on Civil and Human Rights; The Consumer Federation of America (CFA) Financial Services Counsel Micah Hauptman; AARP Executive Vice President Nancy LeaMond; Erin Sweeney, of Counsel at Miller & Chevalier; Rob Foregger, co-founder of NextCapital; LPL Financial; Kenneth E. Bentsen, Jr., SIFMA president and CEO; The Financial Services Roundtable (FSR); The Insured Retirement Institute (IRI) -
U.S. Chamber of Commerce Goes for the Extreme
Apr 7, 2016 | Bloomberg View
By Barry Ritholtz
-The Chamber of Commerce's opposition to the fiduciary rule privileges the concerns of big business and perspectives of political conservatism over the needs and views of small businesses, a group increasingly marginalized by and alienated from the Chamber. The fiduciary rule is illustrative of how the Chamber has deviated from its original mandate. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned: U.S. Chamber of Commerce; WH Council of Economic Advisers; Apple; Yahoo; Netflix; CVS Health; Frank Luntz, Republican pollster;David Merritt, MD, LuntzGlobal; American Sustainable Business Council; Main Street Alliance; Small Business Majority; Ceres. -
Republicans vow to fight new fiduciary rule
Apr 7, 2016 | The Hill
By Peter Schroeder
- Congressional Republicans disagree with the new fiduciary law, calling the initiative misguide, harmful and an overreach of government to middle-class families and small businesses. -No mentions of Capital Group's direct competitors. -Third parties quoted or mentioned include: Speaker Paul Ryan, R-Wis; Jeb Hensarling, House Financial Services Committee Chairman, R-Texas; Tim Pawlenty, CEO of the Financial Services Roundtable; Senator Mark Kirk, R-Ill; Barack Obama, President; Thomas Perez, Labor Secretary. -
Democrats, Republicans vow to continue fight over DOL final rule
Apr 7, 2016 | BenefitsPro
By Nick Thornton
- Benefits Pro reports that despite rule adjustments, many Republican politicians are still unhappy, including Paul Ryan (R-Wisconsin) and a cohort of Republican lawmakers. - Competitors mentioned include: LPL Financial, - Third parties quoted or mentioned include: Sen. Patty Murray, D-Washington; Rep. Xavier Becerra, D-California; Thomas Perez, Labor Secretary; Sen. Elizabeth Warren, D-Massachusetts; White House's Council of Economic Advisers; Sen. Corey Booker, D-New Jersey; Rep. Ann Wagner, R-Missouri; Speaker Paul Ryan, R-Wisconsin; Rep. John Kline, R-Minnesota; Rep. Phil Roe, R-Tennessee; Rep. Kevin Brady, R-Texas; Rep. Peter Roskam, R-Illinois; -
House Republicans Criticize Fiduciary Rule — With Seinfeld GIFs
Apr 7, 2016 | The Wall Street Journal
By Gabriel T. Rubin
- The Republicans on the House Financial Services Committee responded to the formal release of the fiduciary rule with a press release citing Jerry Seinfeld grimacing in horror. The Republican stance on the matter is that the new rule makes it harder and more expensive for consumers to plan for retirement and that there is a better, bipartisan solution to stop the final rule. -No mentions of Capital Group's direct competitors. - Third parties quoted or mentioned include: House Financial Services Committee; Securities and Exchange Commission. -
Why Republicans struggle to convince ordinary Americans the GOP is on their side
Apr 7, 2016 | The Washington Post
By Paul Waldman
- The article focuses on the political opposition to the new rule, discussing the GOP’s reaction to the new rule as an example of why ordinary Americans have trouble trusting that Republicans put their interests first. -No mentions of Capital Group's direct competitors. - Third parties quoted or mentioned include: Harold Pollack, University of Chicago professor, author of The Index Card: Why Personal Finance Doesn't Have to be Complicated;
Winners & Losers
Did the rule go far enough or too far?
Political Commentary
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New Dept. of Labor rules may spur more low-cost investments
Apr 7, 2016 | CNBC
By Bob Pisani
The Department of Labor has finally released its rules on financial advisers, introducing — in most cases — a higher "fiduciary" standard that requires brokers to act in the best interest of their clients, which may include providing lower cost alternative investments where appropriate.
Those of us who for years have been urging American investors to invest in lower-cost products like ETFs can only hope that this will be a wake-up call to those investors.
The new rules will only apply to retirement accounts, but I expect those retirement accounts to slowly —reluctantly — begin to offer lower priced funds, including lower-priced actively managed funds, as well as offering a sprinkling of ETF products.
And I hope that investors will start making more low-cost investment choices.
Todd Rosenbluth, who heads up ETF and mutual fund research at S&P Capital IQ, quantified just how much investors are paying for advice. He notes that the average net expense ratio for roughly 830 large-cap core mutual funds — which are primarily actively managed — is 1.1 percent.
Contrast that with the Vanguard 500 Index Fund, which has an 0.05 percent expense ratio. Or the SPDR S&P 500, the biggest ETF in the world, with an expense ratio of 0.09 percent.
That's a big difference — 1.1 percent vs. 0.09 percent for the SPY!
That means the annual fee for a $100,000 investment in a typical large-cap fund is $1,100. For the SPY, it's $90. You're paying $1,010 more!
Do you get better performance? No. He noted that during the five-year period ended April 5, the large-cap group had an average annualized total return of 9.4 percent. The passively managed Vanguard 500 Index Fund had a return of 11.3 percent.
Rosenbluth also notes that 225 of those big-cap funds — almost a quarter of the large-cap universe — have an expense ratio higher than 1.35 percent.
Really expensive!
Rosenbluth's conclusion: "High-cost mutual funds with poor performance records will be harder for a financial adviser to justify."
Amen!
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Vanguard, Fidelity bank on robos, low-cost strategies to ride DOL fiduciary rule wave
Apr 7, 2016 | Investment News
By John Waggoner
In the shakeout over the Department of Labor's fiduciary rules for retirement accounts, mutual fund giant Vanguard is a clear winner — but archrival Fidelity won't be hurting, either.
The rules, announced Wednesday, require that brokers act in clients' best interests. Generally speaking, that means brokers should prefer lower-cost investment options when possible. And if you look up “low cost” in the dictionary, you'll see a picture of Vanguard founder John Bogle.
“By virtue of being the low-cost provider, Vanguard benefits tremendously from this,” said Dan Wiener, editor of The Independent Adviser for Vanguard Investors, a newsletter. Vanguard, which has about $3 trillion in assets, has said it's still reviewing the new rules, and hasn't made a public comment on them.
Fidelity, which manages $2.1 trillion, has $5.1 trillion in customer assets. It, too, has been officially cautious in its reaction to the fiduciary rules. “We are currently evaluating the rule and what it means for investors, businesses and advisers,” said Fidelity spokesman Steve Austin. “Fidelity is focused on serving the best interests of its customers and clients. We support rules that protect and don't hinder workers saving for retirement.”
Behind the scenes, however, Fidelity has been working for years on its robo-adviser business, which would benefit enormously from the new DOL rules, says Jim Lowell, editor of Fidelity Investor, a newsletter. Robo-advice is a natural beneficiary of the DOL rules, which favor low-cost, objective advice. “It's going to create their next trillion-dollar book of business, if they play their cards right,” Mr. Lowell said.
Of course, Vanguard has been doing exactly the same thing with its Personal Advisor Services platform, which combines technology with human advisers. “The rules will favor on-scale robo-advice platforms and businesses,” Mr. Lowell said. “In that sea, the two battleships are Fidelity and Vanguard, and I'd hate to be caught between them.”
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U.S. Softens New Retirement Rule
Apr 6, 2016 | Wall Street Journal
By MICHAEL WURSTHORN, ANNA PRIOR and YUKA HAYASHI
Wall Street breathed a sigh of relief Wednesday when the industry finally got a look at the Obama administration’s new retirement-advice regulation, discovering some onerous requirements floated earlier had been scaled back.
A broad coalition of financial firms, trade groups, and Republican politicians, joined by a handful of Democrats, spent the past year mounting a fierce counterattack to the Labor Department rule promising to shake up the $14 trillion in assets parked in 401(k)s and individual retirement accounts.
But the rhetoric following the release of the much-anticipated final version softened a bit.
John Thiel, head of Bank of America Corp.’s Merrill Lynch unit, said in a statement Wednesday that he was pleased that officials “worked to address many of the practical concerns raised during the comment period.” In July, his institution said in a comment letter that the previous draft announced last April was “unworkable,” and “highly burdensome and expensive.”
Similarly, Cetera Financial Group President Adam Antoniades acknowledged that the administration “has considered some of the industry’s concerns.” The brokerage, which works with more than 9,000 independent financial advisers, had blasted the earlier version as risking “a number of negative and unintended consequences.”
The stocks of several large brokerage, insurance and asset-management firms rose in morning trading, in part because of initial positive analyst reactions to the softened requirements. They generally ended the day flat or up in line with the market, as legal teams across the industry continued to hunt for the potential devil in the voluminous detail of the new rule.
Not everybody was ready to declare a truce from the pitched battle over the rule, which requires retirement advisers to act as “fiduciaries,” legally bound to act in their clients’ “best interest,” a stricter standard than the current one for brokers only requiring “suitable” guidance. Advocates of the new policy say the old rules encourage advisers to charge excessive fees, favor investments that offer hidden commissions and recommend securities that can be difficult for investors to sell.
Rule opponents say the rule unfairly tars stock brokers and would backfire by making it harder for small savers to get advice. The Securities Industry and Financial Markets Association, an industry trade group leading the opposition charge, said Wednesday it remains “concerned that the DOL’s rule could force significant changes to current relationships, which may leave clients without the help they need to prepare for retirement, at a time when we all agree that more can and should be done.”
The U.S. Chamber of Commerce and others have threatened a lawsuit to try and block the rule, though a decision isn’t likely for a few weeks, while congressional Republicans have vowed a long-shot attempt to overturn it through legislation.
Given the complexity of the regulation, many groups and firms said only that they were “reviewing” the document, as staff members began the job of examining the more than 1,000 pages of regulatory language that were released late Wednesday morning—with trepidation that they might find more troublesome language and requirements in the fine print.
Still, it became clear Wednesday that the administration, despite still-sometimes strident rhetoric bashing the brokerage industry, had been influenced by the flood of comments and complaints that said the original policy had serious flaws.
Soon after the department unveiled its draft proposal a year ago, public comments—most expressing opposition and doubts—poured in. Having received 2,592 by the time the initial 90-day comment period closed on July 12, the department was pressured into taking the unusual step of extending it by two more months. Officials held four days of public hearings and more than 100 meetings.
“The department wanted to bend over backwards to ensure that every conceivable opinion was evaluated, again and again, in order to protect themselves from legal challenges,” said Mercer Bullard, a securities-law professor at the University of Mississippi who worked closely with the administration to push the rule.
The administration seemed particularly willing to listen to complaints backed by Democratic lawmakers, a group the Labor Department desperately needs to support the effort. Ninety-six House Democrats wrote Labor Secretary Thomas Perez in September, for instance, to ask that the department delay the deadline for compliance with the rule and preserve the ability of brokers to sell variable annuities.
The letter also called on the Labor Department to reduce the amount of disclosure that brokers would have to provide to clients.
In a September letter to Mr. Perez, New York Democratic Rep. Carolyn Maloney urged the department “to include listed options as a permissible asset,” saying they allow investors to hedge their exposure to stocks and other investments, echoing a subject that attracted intense lobbying from Options Clearing Corp., a Chicago clearinghouse. The group’s lobbyists stressed to lawmakers that options are used by retirement savers to manage risk in their portfolios, said David Prosperi, an Options Clearing spokesman.
The final rule extended the compliance deadline by at least four months for some of the rule’s provisions and by 18 months for others. The rule also eliminated the list of permissible assets that would have effectively prohibited the sale of options and eased brokers’ disclosure obligations.
Mr. Prosperi declared victory Wednesday saying the clearing house’s view “was represented effectively and we made our points.” The firm’s disclosed lobbying expenses hit $459,000 in the second quarter of 2015, the period immediately after President Obama announced support for the rule—a 38% increase from the previous quarter.
A concern of many securities firms and individual financial advisers had been the “best interest contract” to be signed by an investor and adviser before the adviser could recommend any investments that would pay him or her commissions or related compensation. In the final rule, that document doesn’t have to be signed by a new client until he or she is filling out other paperwork to actually open an account. The regulators also adjusted the proposal to make it clear that advisers could meet the new requirements to put clients’ interests first even if they sell only a limited lineup of their own company’s mutual funds or insurance products.
The Labor Department also retreated from language that would have explicitly favored low-cost investments and declared instead that an adviser isn’t required to recommend the lowest-fee option if another product might be better for a client. “The Yugo may be the lowest priced car, but it ain’t a very good car,” Mr. Perez told reporters in explaining one of the changes.
Still, in some ways, the rule actually got tougher through the process. Among the apparent losers: sellers of one retirement-savings product, indexed annuities that have been criticized for complexity and high compensation to sellers. These insurance-company products pay interest based on the performance of a stock-market index. The regulators decided sales should be subject to the protections of the best-interest-contract exemption rather than the lesser protection of an exemption for simpler interest-paying annuities.
That hit small-cap stock American Equity Investment Life Holding hard. Its shares fell 15%. The Iowa company is a leading seller of these annuities and they represent most of the company’s sales, analysts said.
John M. Matovina, president and chief executive officer of American Equity Investment Life, said the new rule for indexed annuities “was very unexpected,” adding: “We don’t believe there is any rational basis” for the move. He said it is “way too early to determine what the final impact on sales will be.” The company is continuing to examine the rule and “determine the proper course of action to be compliant.”
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Apr 6, 2016 | Wall Street Journal
By WSJ Editorial Board
President Obama’s regulators aren’t slowing down, alas. And on Wednesday they unveiled another part of their plan to push Americans out of private investment accounts and into government-run plans.
The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.
Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.
This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”
Meanwhile, there are only losses for private competitors. The final rule Labor SecretaryTom Perez unveiled Wednesday is being marketed as less onerous than an earlier draft. Thus much of the financial industry is going to take a few weeks to decide on its response. But the main question is exactly how many billions of dollars in costs and lost opportunities will be visited upon investors. And how big the incentive will be to seek government options.
The White House claims it is solving a $17 billion problem for consumers who suffer from “conflicted advice,” but the investment advisory industry is already among the most regulated. The $17 billion figure was assembled from a variety of data sets, many of which weren’t measuring the alleged problem that Team Obama says it can solve, and some of which were generated by people who don’t endorse the White House analysis. In any case government-run plans will have their own conflicts of interest—politicians want the money—and will be expensive.
Mr. Perez claims his agency “worked closely” with the government’s actual IRA and investing experts at Treasury and the Securities and Exchange Commission. But when Wisconsin Sen. Ron Johnson’s Government Affairs Committee dug into the interagency email traffic, he found Labor telling an SEC staffer, “we have now gone far beyond the point where your input was helpful to me.” Senator Johnson’s report says emails show that Treasury officials also criticized Labor’s proposal.
Still, Labor’s one-two punch on private savings has something for everyone in the progressive coalition. Senator Elizabeth Warren can check off another item on her wish list of anti-business initiatives. Mr. Perez gets to burnish his credentials as a candidate for Vice President. And Mr. Obama gets to say he helped government control more of the private economy.
What average investors get out of this deal is much less certain. But judging by the pending California plan, one answer is: low returns. The initial investment allocation, even for young workers, is likely to be heavy on government bonds. Naturally.
California and other states are still working out the details of their new foray into investment management. Depending on how the plans are structured, they may be headed back to Washington to seek exemptions from the SEC. They won’t want to live with the rules that the commission places on private brokerages or mutual funds, but the SEC’s mandate is to protect investors, not politicians who want government to manage workers’ financial assets.
Charging young investors for the privilege of loaning money to government, while handicapping private competitors and denying choices to middle-income consumers. Another perfect progressive innovation.
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Did the DOL Gut the Fiduciary Rule, or Save It?
Apr 7, 2016 | WealthManagement.com
By David Armstrong
The Dept. of Labor’s final fiduciary rule, released Wednesday, differed enough from the proposed version that the DOL felt compelled to publish a lengthy chart detailing where the two diverged.
Mostly, commentators focused on changes to the so-called “best interest contract exemption,” or the hoops an advisor will have to jump through to continue getting paid in ways that might be considered unworkable in a true fiduciary arrangement, like sales commissions or revenue-sharing arrangements.
By the Labor Department’s own admission, those hurdles were lowered, making it easier for a retirement advisor to work under the exemption. Detailed analysis of the impact of fees, considered by some an essential component for transparency, were largely curtailed in favor of “streamlined” disclosures of potential conflicts. Details will be available if the client requests them.
To continue working with retirement investors, advisors still need to make decisions in a client’s best interest, fees can’t be egregious and conflicts must be disclosed, but in the final rule an advisor is free to engage in any compensation structure to sell virtually any investment product available. That includes products with reputations for being very much not aligned with a retirement saver’s best interests, like variable annuities, non-traded REITs and listed options.
But some industry observers think the DOL took the adjustments too far.
“Wall Street Dodges a Bullet,” wrote Joshua Brown, CEO of Ritholtz Wealth Management in New York, on Fortune.com, noting that virtually all the products brokers sell will still be allowed as long as additional disclosures of conflicted business arrangements are made. “This will be no trouble at all: Just picture the speed with which you click “Agree” every time iTunes does a software update.”
Thomas Perez, secretary of the Dept. of Labor, said "extensive feedback" from industry stakeholders led to the changes, including from the brokerage firms that will be most impacted.
That impact was most immediately felt in the stock market. Prices for brokerage firms like Primerica and Ameriprise jumped immediately after the rule was published. LPL, the largest independent broker-dealer in the country, was at one point up 7 percent. According to a Morgan Stanley analyst, the Dept. of Labor “meaningfully softened” the rule, and “that’s good news for those companies."
Knut Rostad, head of the Institute for the Fiduciary Standard, said “from Wall Street reactions, it appears we are aligned agreeing the final rule has been significantly softened. The difference is Wall Street likes it and I don’t."
Andrew Stoltmann, a Chicago securities attorney, says that on the whole, the rule is a positive one for investors, but “it’s a watered down version of what many of us thought would be a stringent fiduciary duty. There are carve outs and holes in this rule that you could drive a pretty big Mack truck through.”
“Any fiduciary duty that can be discharged by disclosure is problematic,” he said. “They go in the trash just like the prospectus does. As a fiduciary, I can’t rely on disclosure."
The best-interest contract exemptions that allow for the sale of investments like variable annuities, non-traded REITs and listed options, as long as the conflicts are disclosed and fees are not unreasonable, requires advisors to still commit to putting their clients interests first by mitigating the harm of those conflicts.
“To argue in, any instance, that a variable annuity in an IRA is the best option for any investor just doesn’t pass the red-face test,” Stoltmann said.
But some commentators suggested the DOL is taking a longer-term view by giving opponents a handful of concessions, while keeping intact what Perez repeatedly called the “North Star” of the rule, that advisors, regardless of context and regardless of investment product, put client interests ahead of their own.
In other words, though it is theoretically permissible under the contract exemptions, it is unlikely advisors will have any client for whom there is no better option for their retirement savings than a non-traded REIT or complex annuity.
"If we are setting ourselves up to lead with the exemptions, then we are going to fail,” said John Anderson, head of practice management for SEI Advisor Network. “We are starting from a position for the client that is a non-win."
“The perceived conflict is still there. You are still going to have to explain your conflict. You are going to have to explain what your fees are,” he said. "I think they are trying to sell this first to the manufacturers. But this is the first shoe to drop. This is a first step and they’re taking it a little softer than they were originally proposing. Five years from now, it will be dramatically different than it is today."
“There is no question they have scaled back disclosure requirements,” says Barbara Roper, the director of investor protection at the Consumer Federation of America. Still, she praised the rule for “closing the loopholes” so advisors “can no longer evade their obligation to serve their customers’ best interest.”
The rule demands firms with advisors working under the best-interest exemption "must have policies and procedures designed to mitigate harmful impacts of conflicts of interest,” according to the DOL. Mitigation should eliminate many of the “toxic conflicts that pervade the brokerage and insurance model,” Roper said.
By mitigating the harm of conflicts, firms will find they can no longer justify them, Roper said. Advisors could still be paid in commissions or other sales-based compensation structures, but firms won’t be allowed to incentivize one product over another. “Paying an advisor more to sell one fund over another? That won’t be allowed. Setting sales quotas won’t be allowed. A ratcheted payout grid? That should be gone,” under the terms of the DOL rule, Roper says.
“Hopefully this will put pressure on product sponsors to create products that can compete,” she said. “There is no reason that variable annuities have to be so costly. If you want to stay competitive with this market revise the product so it can be sold in a best interest standard.”
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Vanguard CEO 'encouraged' by efforts to revise retirement advice rule
Apr 7, 2016 | Reuters
By Trevor Hunnicutt
Vanguard Group Chief Executive Bill McNabb said on Thursday that he was encouraged by the U.S. Department of Labor's steps to make its new rules on the advice brokers provide on retirement savings "more workable."
McNabb, whose company is a major manager of retirement investments, said the U.S. government agency took "important steps to establish meaningful protections for retirement investors while making the final rule more workable," in a statement posted online on Thursday. (Reporting by Trevor Hunnicutt; Editing by Steve Orlofsky)
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Fiduciary Rule Shows Washington Compromise Can Still Happen
Apr 7, 2016 | PlanAdviser
By John Manganaro
More than a few industry insiders and analysts have tipped their hats to DOL and Labor Secretary Perez for listening carefully to criticism and reshaping some of the most controversial elements of the new fiduciary rule.
Count Russell Investments directors Jean-David Larson and Sam Ushio among the financial services industry professionals who were grateful to see the Department of Labor (DOL) dial back some elements of its new fiduciary standard.
The final rule isn’t perfect, they stress, but they view it as a genuinely positive next step for the financial services industry and its clients, to be understood in the context of the Obama Administration’s wider effort to boost consumer protections and the stability of the U.S. economy after the 2008 credit crisis. This is clearly becoming one cornerstone of the president's attempts to solidify his legacy during the waning months of his final term.
Larson is director of regulatory and strategic initiatives, while Ushio focuses on the firm’s advisory practice management support business. Like others interpreting the final fiduciary rule language emerging this week from the DOL, the pair say it appears that DOL and Labor Secretary Perez made effective use of the nearly 400,000 formal written comments and hundreds of hours of public testimony to shape the rule into an acceptable final form.
“At Russell Investments we really strive to have a global focus,” Larson tells PLANADVISER. “And from that perspective, we have seen this rule change as a matter of when, not if, for a long time now. The U.K. and Australia have similarly moved in recent years to strengthen advice standards, and it truly was only a matter of time before the movement took hold here.”
For this reason, Larson says Russell Investments was able to “engage early and often” with the DOL and other stakeholders inside and outside government. “Going from what was proposed to where we are now, it’s a big step,” he says. “It’s a real victory for both the industry and the DOL.” A growing list of financial services firms have echoed this sentiment, such that there has clearly been much less initial criticism of the final rule compared with the two proposed versions from 2015 and 2010.
Ushio adds that the DOL’s new presentation of the final rule “clearly has adjustments that are going to help mitigate unintended impacts on both the retail and institutional advice markets. The final rule is much more clear that, rather than prescriptively requiring one business model or another, the DOL is interested in assuring advisers adhere to the best-interest standard when dealing with clients. That is the North Star the Secretary has talked about.”
As Ushio and Larson read the final rule, “obviously there’s still going to be a benefit from the regulatory compliance perspective to doing more level-fee and flat-fee business.” But, they say, it also appears that “commissions and sales fees will still absolutely be a viable way of doing business, so long as the best-interest standard is maintained.” Ushio adds: “There may very well be cases, based on the factors such as the size of the client or their particular interests, where a commission-based fee is the right way to go. The final rule makes this clear. Commissions will not be disappearing overnight.”
NEXT: CFA Institute weighs in
Speaking with PLANADVISER, Jim Allen, head of capital markets policy in the Americas at CFA Institute, also voiced support for the flexible-but-determined approached embodied by the DOL under Secretary Perez.
“I think from our perspective at CFA institute, the most important part in all of this rulemaking and the associated debate is that we maintain a direction towards ensuring that the end investors are given the primary place in our industry,” Allen says. “That is the most important message we have, and it really seems that the DOL and Secretary Perez share that goal. So overall this is a good step, we’re very happy to see that the number of fiduciary advisers will substantially increase.”
Allen agrees with the others that “many of the technical changes we felt may have been needed have apparently been made,” for example increasing the implementation period to 21 months and cutting some requirements that brokers provide forward-looking performance projections on certain products.
“The eight month implementation people were talking about before the final rule language came down was going to be really tight for a lot of firms,” Allen explains. “They were feeling that they would simply have to turn on a dime and make some really challenging decisions really quickly. Now, with the longer implementation period, there is much more space for firms to come up with a thoughtful response.”
Allen also agrees with Ushio and Larson that a lot remains to be seen in terms of how firms will comply and how the industry will ultimately deal with new basic standards for how advisers can get paid and speak with clients.
“We had some issues with the complexity of this rulemaking, and that complexity is obviously still there,” Allen concludes. “The complexity is probably unavoidable, given the DOL’s objectives and the interests of the industry to avoid complete disruption. It’s a function of trying to improve the standards of client care while simultaneously permitting entities with potentially conflicted models to keep doing business. The complexity comes because there is still a legitimate role for both fiduciary and non-fiduciary advice, and the DOL knows this.”
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SIFMA’s Bentsen: DOL Rule Will Have Unintended Consequences
Apr 7, 2016 | ThinkAdvisor
By Bernice Napach
In the meantime SIFMA is studying the rule to understand and implement it, Bentsen told attendees at SIFMA's Private Client Conference
SIFMA President Ken Bentsen says the final Department of Labor fiduciary rule “will have dramatic intended and unintended consequences for investors and the firms that serve them.”
In his opening remarks at today’s SIFMA Private Client Conference in New York, Bentsen said, “It is too early to make a definitive statement on the final rule’s actual effects and impact” given the “complexity and volume” of the rule, which runs around 1,000 pages.
He acknowledged that the DOL made changes from earlier versions of the rule, but repeated SIFMA’s concerns that the rule could end up raising costs and reducing choice for investors.
In addition, Bentsen, like Financial Services Institute CEO Dale Brown, questioned the need for the DOL fiduciary rule. “We remain concerned that the original premise for the rule lacked empirical basis.”
Bentsen also criticized “statements from the official sector suggesting that the brokerage industry’s business model ‘rests on bilking’ clients or that every mutual fund in every IRA … is excessively charged, when the facts say otherwise.“
Bentsen was referring in part to comments from President Barack Obama last year, repeated by Jeffrey Zients, director of the White House National Economic Council, on Tuesday when he and Labor Secretary Thomas Perez introduced the final fiduciary rule to the media.
“If your business model rests on bilking hardworking Americans out of their retirement money, then you shouldn’t be in business, ” said Zients, echoing the president.
Such statements “malign an entire sector of the economy and by extension every professional employed in it,” said Bentsen.
He said the industry believes in “a higher standard of care when providing personalized investment advice” but prefers “the congressionally authorized approaches of the [Securities and Exchange Commission] taking such actions.”
The SEC has been working on its own fiduciary standard for advisors and brokers for years, but the DOL beat it to the punch.
As it stands now, IRAs are held to a fiduciary standard, but brokerage accounts are subject to the less stringent suitability standard, tweeted Michael Kitces, director of research for Pinnacle Advisory Group, blogger and publisher of the widely read Kitces Report covering the financial planning industry.
SEC Chairwoman Mary Jo White told Congress last month that the process of developing an SEC fiduciary rule was “complicated, not fast,” and that the agency’s rule would be different from DOL’s.
Despite his opposition to the DOL rule, Bentsen said it was final and SIFMA would now take the time to understand and implement it. To that end SIFMA plans to hold a one-day conference on May 11 with expert counsel, consultants and regulators, from the DOL, SEC and the Financial Industry Regulatory Authority to discuss the new rule.
“We don’t have to like everything in the release, [but] we do need to follow it,” Jim Weddle, managing partner at Edward Jones, told attendees at the SIFMA conference.
He said the financial advisory industry “did not do a very good job communicating concerns about the original proposal but now has a second chance … This time our compliance with new rules will grow the public’s trust and confidence in the work we do for them.”
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Most Reacting Positively to Fiduciary Rule
Apr 7, 2016 | PlanAdviser
By Rebecca Moore
However, a few industry groups are still expressing concerns.The Department of Labor (DOL) has finally issued its final fiduciary rule (or what it calls the conflict-of-interest rule), and comments from consumer and financial industry groups have been pouring in.
While most are still digging into the details of the final rule, the initial response has been mostly positive. The final rule includes changes the DOL said were in response to industry concerns.
U.S. Senator Ben Cardin (D-Maryland), a member of the Senate Finance Committee, said he is reviewing the final rule to make sure it is workable. “A best interest standard is key to ensuring Americans receive financial advice they can trust and to combatting truly abusive behaviors in our financial system. As I have said throughout this rulemaking process, it is critical that a final fiduciary rule be workable and useable, and enhance savings opportunities and retirement security for small businesses and moderate income families. I look forward to reviewing the announced changes with these concerns in mind,” he said in a statement.
Consumer groups were especially pleased with the final rule. Nancy Zirkin, executive vice president and director of policy at The Leadership Conference on Civil and Human Rights, said, “This common sense rule will ensure that when working Americans turn to financial professionals for help, they will get honest advice that’s in their best interest—not a self-serving sales pitch. We applaud the Administration and Secretary Perez for taking this much-needed step in improving an outdated system that has cost working and middle-class families billions of dollars in retirement savings due to biased, unethical financial advice. This long overdue rule will protect Americans from the conflicts of interest that allowed advisers to reap excessive profits and kickbacks while costing retirement savers more than $17 billion a year. Today’s announcement will help all Americans—whether they can save a little or a lot—retire with dignity.”
The Consumer Federation of America (CFA) Financial Services Counsel Micah Hauptman, stated, “While we will conduct a more detailed analysis of the rule over the coming days and weeks, our initial review indicates that the rule is a huge win for consumers. It appears that the rule properly closes the loopholes in the current rule so that financial professionals can no longer evade their obligation to serve their customers’ best interest... At the same time, the DOL has offered a balanced approach that reflects considerable input from a variety of stakeholders.”
AARP Executive Vice President Nancy LeaMond, said, “Today marks a tremendous victory for consumers. The new rules ensure that anyone who is saving for their retirement will know that the advice they receive must be in their best interest. This is simply common sense, and it is common practice for many financial professionals already.”NEXT: Many appreciate the changes DOL made
Erin Sweeney, of Counsel at Miller & Chevalier, noted some of the significant changes between the final rule and the proposed rule. “The DOL eliminated some of the most contentious disclosure requirements from the proposal, including eliminating the requirement to develop investment projections and distribute an annual disclosure to investors,” she noted.
Sweeney also notes that the final rule exempts plans covered by the Employee Retirement Income Security Act (ERISA) from the requirement that a fiduciary investment adviser or financial institution enter into a written contract with an investor prior to making a “recommendation.” Although IRAs and non-ERISA plans remain subject to the written contract requirement, the final regulation clarifies that the contract provisions can be incorporated into account opening documents. Moreover, the regulation makes clear that existing clients need not execute a new written contract—instead, advice providers can notify current clients of the amendments and if the client does not object to the modifications, the new provisions will become part of the existing agreement between the advice provider and the investor. Along the same lines, the DOL incorporated a grandfathering rule for existing arrangements.
“Another notable change is that the DOL eliminated the list of approved investments and indicated that advice providers are permitted to provide investment advice with respect to all asset classes to investors. The DOL also expanded the ability of plans with less than 100 participants to obtain investment advice from an advice provider without that provider becoming subject to the fiduciary rules. Finally, the DOL also clarified what is not covered—the final rule spells out the DOL’s view that health, disability and term life insurance policies are not subject to the fiduciary rule. Similarly, the DOL reserved all appraisal and valuation issues for a later rulemaking,” Sweeney stated.
Rob Foregger, co-founder of NextCapital, said, “The DOL has made very sensible amendments to the proposed rule. The final result strikes the right balance.”
LPL Financial seemed to agree, issuing this statement, “Upon initial review of the Department of Labor fiduciary rule, LPL Financial is pleased by what appears to be positive changes implemented in the rule and appreciates the Department of Labor’s willingness to listen to concerns about protecting choice for investors. 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.”NEXT: Still concerns
Despite mostly positive reactions, there were some groups that still expressed concerns with the final rule.
Kenneth E. Bentsen, Jr., SIFMA president and CEO, said, “As with the prior proposal, this final rule is voluminous and every word matters. It will take time to review the rule to determine its impact on investors and their ability to save for retirement. SIFMA has long supported a best interest standard for all advisers, yet we remain concerned that the DOL's rule could force significant changes to current relationships, which may leave clients without the help they need to prepare for retirement, at a time when we all agree that more can and should be done. While we continue to believe the Department's methodology is greatly flawed and lacking sufficient empirical basis, a poorly drafted rule could result in unnecessarily raising costs for investors while limiting their choice, a concern shared by many commentators and other regulators.”
The Financial Services Roundtable (FSR) said it will be analyzing the final rule to determine any appropriate further action. “Policymakers should do everything they can to help Americans be more prepared for retirement and not create red tape that makes saving for retirement more difficult,” said FSR CEO Tim Pawlenty.
FSR also noted that the DoL’s fiduciary proposal has triggered significant public policy and implementation concerns from the financial services industry, academics, policy experts and elected officials from across the political spectrum.
The Insured Retirement Institute (IRI) stated that it made a point to make the Administration and Department of Labor aware of how its fiduciary rule proposal would limit consumers’ choices for retirement products including lifetime income strategies. IRI President and CEO Cathy Weatherford said, “In addition to concerns about limited consumer choice on lifetime income products, IRI and its member companies, along with hundreds of members of Congress on a bipartisan basis and thousands of other commenters, have been concerned that the rule as proposed would restrict access to retirement planning advice for younger savers and those with modest savings.
“We have provided considerable, constructive input to the Department of Labor, the Administration, and policymakers on Capitol Hill to help address these concerns. Through our comment letters, testimony and meetings with regulators, we have provided specific revisions to ensure retirement savers can continue to access retirement planning advice and a full array of lifetime income options. We will carefully examine the rule in its final form to determine if these important changes have been made to avoid any harmful consequences for retirement savers.”
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U.S. Chamber of Commerce Goes for the Extreme
Apr 7, 2016 | Bloomberg View
By Barry Ritholtz
n 1912, the U.S. Chamber of Commerce was created at the behest of President William Howard Taft as a business counterweight to the growing labor movement.
To say it was a success is an understatement. While organized labor has languished, the Chamber has become the single largest lobbying organization in the country. According to Open Secrets, a site that tracks political lobbying and spending, during the past 18 years the Chamber has spent three times more than any other organization on behalf of industry ($1.2 billion versus $351 million by the No. 2 lobbying group, the National Association of Realtors).
This is of great interest in the context of the Chamber's opposition to the new fiduciary rules for retirement accounts, requiring brokers to put savers' interests ahead of their own. Opposing the fiduciary standard may be pro-Wall Street, but it's anti-small business.
So I decided to do a bit of digging to find out where the Chamber’s advocacy pits it against broader business interests. What I found was that the Chamber is at odds with the interests of some, if not most, of its membership in three other areas: climate change, minimum wages and tobacco.
First, let's take a deeper look at the fiduciary rule: On one side is the financial industry, which manages about $14 trillion in various retirement plans. The president’s Council of Economic Advisersestimated that more than 10 percent of the advice given is conflicted in some way. That bad advice causes a performance lag of about 1 percent, costing investors an estimated $17 billion a year. This is money that otherwise would go into retirement-saving accounts. Wall Street, of course, isn't happy about the change and the vehemence of the opposition to the new rules make me suspect the losses for investors -- and the profits for the financial industry -- are much bigger.
On the other side are the millions of small businesses that have potential liability as 401(k)-plan sponsors. The natural outcome of this change is that once the new rules take effect, businesses will be in a position to shift that liability to the fiduciary advisers. This is something they should welcome -- especially since 96 percent of the Chamber's member businesses have fewer than 100 employees. These are precisely the companies that will benefit from the change.
All of which makes the Chamber’s opposition -- based on arguments that have already been debunked -- so surprising. The new fiduciary rule doesn't harm business; it's a benefit. The Chamber had said it may sue over the fiduciary adviser rules, although for the time being it's taking a wait-and-see approach.
Examination of other positions leads to the conclusion that the Chamber isn't so much an advocate for industry as much as it is a conservative think tank.
On climate change, consider that 94 percent of Chamber campaign contributions went to candidates who were climate-change deniers.
Not surprisingly, this has provoked a considerable backlash. In 2009, Apple, the world's largest company by market value, left the Chamber over its position on climate change. Yahoo left for the same reason in 2011. Athletic apparel powerhouse Nike resigned from the Chamber’s board, though it remained a member in order to press the organization to alter its positions. More recently, Nike joined with 100 other companies to support President Barack Obama's proposed regulations on carbon emissions.
And it's not just businesses, but local Chamber of Commerce chapters -- at least 60 have left since 2009 because of the Chamber's "extreme positions." (Only 249 of the 7,000 local chambers are members of the national organization.)
Ignoring those companies opposed to the Chamber's stand on climate change is easy. Why? Money, of course. A third of the Chamber's revenue comes from just 19 companies, many of them in the energy industry.
The case of pharmacy giant CVS Health is also instructive. In 2014, it became the first big drug-store chain to remove cigarettes and other tobacco products from its stores -- the reasoning being that it's in a business related to health care. The following year, after reports that the Chamber was working around the world to fight antismoking measures, CVS decided to drop its membership.
Another schism between the Chamber and most of its membership is over the minimum wage. The Washington Post reported that leaked documents from Republican pollster Frank Luntz showed that 80 percent of business owners supported raising the pay floor:
LuntzGlobal managing director David Merritt told state chamber executives in a webinar describing the results…that it squares with other polling they’ve done. "And this is universal. If you’re fighting against a minimum wage increase, you’re fighting an uphill battle, because most Americans, even most Republicans, are okay with raising the minimum wage."
The Chamber is opposed to a higher minimum wage.
Some of the dissatisfaction with the Chamber is reflected in the growth of alternative business lobbying groups. Groups such as theAmerican Sustainable Business Council, the Main Street Alliance and the Small Business Majority have blossomed. A number of larger corporations (including Bloomberg LP, parent of Bloomberg News), have joined Ceres, which is committed to creating "a thriving, sustainable global economy" -- a charge that puts it at odds with the U.S. Chamber on a number of issues.
The Chamber’s priorities are aligned with the small number of companies that are its largest contributors. Maybe that's only natural. In any case, it no longer seems like the organization serves the interests of business at large.
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Republicans vow to fight new fiduciary rule
Apr 7, 2016 | The Hill
By Peter Schroeder
Congressional Republicans are vowing to fight against new White House regulations that would impose stricter rules on retirement investment advisers.
GOP lawmakers promised to use every tool available to them to delay or otherwise disrupt the new Labor Department rules finalized Wednesday, calling the long-running initiative misguide and harmful.
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“We will continue to look at every avenue to protect middle-class families and small businesses from government overreach,” said Speaker Paul Ryan (R-Wis.), who had criticized the rule in the previous weeks.
“Congress must act to stop this costly, complicated and potentially conflicting rule that’s unfair to millions of American families who only want the freedom to plan for financial independence and the right to shape their own destiny,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas).
Despite the GOP outcry, the response from the financial industry, which fiercely contested the rule-making, was much more muted. Most industry groups took a measured tone, saying they have concerns about the overall project but want to review the new rule, which is expected to run hundreds of pages, before issuing a final verdict.
“Policymakers should do everything they can to help Americans be more prepared for retirement and not create red tape that makes saving for retirement more difficult,” said Tim Pawlenty, CEO of the Financial Services Roundtable.
That group, which represents the largest names in the financial industry, said it was reviewing the final rule “to determine any appropriate further action.”
While industry groups review the rule, Republicans are resolute in their vow to fight against it. House lawmakers, primarily Republicans, have already passed legislation that would delay the rule-making effort, and legislators said they plan to revisit such legislation in the wake of a final rule.
Even Republicans in tough reelection races, like Sen. Mark Kirk (R-Ill.), criticized the initiative. Kirk previously sponsored legislation that would require Congress to sign off on any such rule-making.
“I am disappointed the Department of Labor is moving forward with its misguided government takeover of Americans’ retirement planning despite bipartisan opposition,” he said in a statement.
Despite the promise to fight, any effort to upend the new rules via legislation is likely to be a long shot. Even if Republicans can garner enough Democratic support to push a bill through both chambers, the White House would almost assuredly veto the legislation. President Obama made the initiative a top priority one year ago, reviving a proposal that had stalled in prior years.
At the heart of the battle in a new set of rules imposing a fiduciary duty on retirement investment advisers. Under the new rules finalized Wednesday, advisers must act solely in the interests of their clients, and the White House argues the new regulations will ensure Americans are not steered toward improper investments by advisers looking to reap higher fees.
But blocking the rule-making effort, which has spanned years, has been one of the top priorities of the financial industry. Financial firms argue the new requirement would prove immensely costly and burdensome, and could prevent less wealthy Americans from receiving retirement advice at all.
Advocates for the rule argued just the opposite, saying the only advisers to be harmed by the rule would be ones taking advantage of clients in the first place.
“I am very confident the industry will be able to comply with this streamlined rule,” said Labor Secretary Thomas Perez.
Proponents of the rule argue it could save Americans billions of dollars that will now help fill their retirement coffers.
Sen. Elizabeth Warren (D-Mass.) said the new rules are bad news for “slick-talking advisers pushing complicated products.”
“This is an enormous victory for hard-working Americans,” she added.
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Democrats, Republicans vow to continue fight over DOL final rule
Apr 7, 2016 | BenefitsPro
By Nick Thornton
Sen. Patty Murray, D-Washington, a relatively obscure face during the long run-up to today’s release of the Department of Labor’s fiduciary rule, was the first Democratic lawmaker to fire a preemptive shot against Republicans hoping to reverse the rule.
“We are not going back,” said Murray at at the Center for American Progress, which hosted an event announcing the rule’s release.
Several Democrats followed, sending not-so-subliminal messages to Republicans on Capitol Hill who have vowed to fight to the rule’s ultimate implementation.
Rep. Xavier Becerra, D-California, noted the length of the DOL’s rulemaking process, which by today’s announcement was into its sixth year. “Doing nothing is not a solution. It is time to act,” he said.
Officially published on the Federal Register’s website today, the rule comprises more than 1,000 pages.
Many of the rule’s proposed provisions have been changed or streamlined, noted Labor Secretary Thomas Perez at the event. A barrage of trade organizations and stakeholders have released statements both in support of and against the rule; most of those statements also noted the voluminous rule is in the initial stages of review.
Sen. Elizabeth Warren, D-Massachusetts, was unabashed in her enthusiasm for today’s release. “Sometimes government works for people. Today is one of those days,” said Warren.
For decades, honest advisors have had to compete with “slick talking advisors that push complicated products that produce terrible results,” she said.
Warren cited recent news that brokerage firm LPL is preparing to reduce brokerage fees by up to 30 percent in preparation for the DOL’s rule as evidence that too many advisors have been offering conflicted advice. LPL manages nearly $450 billion in retirement assets.
Industry opponents of the rule will likely continue to fight its implementation, said Warren, saying they have “17 billion reasons to do,” referencing estimates by the White House’s Council of Economic Advisers that says investors lose $17 billion in savings annually to conflicted advice.
Sen. Corey Booker, D-New Jersey, said the rule will make the American dream more real for middle-income savers, but warned that other regulations have been undermined before.
“This fight ain’t over,” said Booker. “There will be others that try to undermine this rule.”
In separate statements, several Republican lawmakers aired criticisms of the rule.
Rep. Ann Wagner, R-Missouri, who has been at the forefront of Republican legislative opposition to the rule in the House of Representatives, said she continues to work with her party’s leadership “to stop this ill-advised rule.”
The final rule “will only hurt those it claims to protect, jeopardizing the ability for millions of low-and-middle-income Americans to receive sound investment advice.”
Upon the rule’s release, Speaker of the House Paul Ryan, R-Wisconsin, took to his blog.
“While it is clear that public and congressional scrutiny are making a difference, we will continue to look at every avenue to protect middle-class families and small businesses from government overreach,” wrote Ryan.
Another cohort of Republican lawmakers in the House of Representatives—Rep. John Kline, R-Minnesota, Rep. Phil Roe, R-Tennessee, Rep. Kevin Brady, R-Texas, and Rep. Peter Roskam, R-Illinois—issued a statement voicing criticism of the final rule, in spite of amendments made to the original proposal.
“We continue to have serious concerns that these new rules will make it harder for low- and middle-income families to receive basic education about retirement savings and will create new hurdles for small business owners who want to offer their workers retirement options,” they wrote.
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House Republicans Criticize Fiduciary Rule — With Seinfeld GIFs
Apr 7, 2016 | The Wall Street Journal
By Gabriel T. Rubin
Republicans on the House Financial Services Committee have been fighting the Obama administration’s rule on investment advice for years—and on the day after the formal release of the final rule, they rolled out a new strategy: criticizing the regulation through Seinfeld GIFs.
“The Administration just published a rule to ‘protect consumers’ which sounds great at first, but then we realized that it’s 1,000 pages….And it doesn’t actually protect consumers at all,” Republican committee staff said in a press release. The point is illustrated by an shot of Jerry Seinfeld grimacing in horror at the camera.
Using images of exasperation and disgust, the press release warns that the new Department of Labor regulation will make it more “harder and more expensive” for consumers to plan for retirement.
“Seinfeld has virtually universal appeal, unlike Washington red tape,” a committee spokesman said. “For Americans trying to save for retirement, this fiduciary rule will be something added to their ‘airing of grievances’ at the next Festivus celebration.”
The regulation known as the fiduciary rule would require investment advisers to provide advice that is in the best interests of their clients. Prior to the rule, many investment advisers such as broker-dealers were only required to abide by a “suitability” standard. Advocates of the new policy say it will prevent advisers from charging excessive fees or favoring investments that provide them with the highest commission.
Despite the promulgation of a final rule, the committee release says the “good news” is that there is “bipartisan solution to stop this final rule,” and links to a bill passed by the House last October that would block the Labor Department regulation until the Securities and Exchange Commission comes up with its own rule. The SEC, which many rule opponents regard as the proper agency for a fiduciary standard, has yet to act on its own version.
The release ends with two celebratory GIFs of Mr. Seinfeld smiling with a Tweety Bird Pez dispenser and the George Costanza character, played by Jason Alexander, pirouetting through a New York street.
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Why Republicans struggle to convince ordinary Americans the GOP is on their side
Apr 7, 2016 | The Washington Post
By Paul Waldman
Attention, Republicans: if you want to know why Americans never seem to believe you when you say you have ordinary people’s interests at heart, look no further than the new regulation governing investment advisers the Obama administration has now released.
I realize that few readers will lean forward with excitement upon reading the words “fiduciary standard,” but this is actually an important topic, both substantively and politically, so stay with me. The new regulation, which had been in the works for some time, says that investment advisers are required to follow a fiduciary standard, which means nothing more than that they have to be guided by what’s in their client’s best interests, just like a doctor or lawyer must.
You might ask, who on earth could possibly object to that? Other than the investment advising industry, of course. The answer is…the Republican Party.
Not the whole party, actually. Most Republicans would rather not discuss this issue at all, because doing so puts them in an uncomfortable place. But I have yet to find a single elected Republican who comes down on the side of the fiduciary standard.
To explain briefly: As things exist today, when you hire a financial adviser, they’re under no obligation to actually give you advice that’s in your best interests. What they often do instead is sell you products from which they’ll obtain bigger commissions, pushing you into investments that make them more money but won’t necessarily be good for you. The new regulation changes that, imposing the fiduciary standard on those advisers. This is a very big deal, because we’re talking about an industry that manages trillions of dollars in Americans’ money.
This morning I spoke to University of Chicago professor Harold Pollack, co-author (with Helaine Olen) of The Index Card: Why Personal Finance Doesn’t Have to be Complicated and a longtime advocate of the fiduciary standard. He was, unsurprisingly, enormously pleased by the administration’s move.
“People are unaware of the many conflicts of interest that exist in the financial advice industry and how much money it costs them over the course of their lives,” Pollack said, noting that selling clients products they don’t need is a core part of the industry’s business model.
But Pollack is quick to note that financial advisers provide an essential service, since most of us don’t have the expertise to make good investments and save properly for retirement or our children’s education. It’s also an extremely intimate relationship — Americans are notoriously secretive about their finances, which means you’ll share details of your life with your financial advisor that you wouldn’t tell friends or even some family members. That’s why it’s essential that the relationship is based on a core of trust.
“When people are dealing with financial advisers,” Pollack says, “they need to know that what they are getting is actual advice and not a sales pitch.” He also pointed out: “The research that has come out about the poor performance of actively managed investments has had a huge impact.” More and more people are becoming aware that the best investment strategy is often to simply park most of your money in a low-fee index fund; no matter how smart your adviser is, you aren’t going to beat the market.
So what are the political implications of this new rule? On the surface, you’d think that a position in opposition to the administration’s move would be almost impossible to defend. Who’s going to argue that your financial adviser ought to be able to push you into buying something you don’t need? That’s just a couple of steps away from outright fraud.
But if you listen to Republicans, it becomes clear they don’t like the rule, but not for any specific reason relating to the rule itself. They’ll talk about Washington bureaucrats and Obama overreach, but the tell is in their repeated use of the phrase “Obamacare for financial planning!” (here’s an example from Paul Ryan). Whenever Republicans say something is “Obamacare for X,” it’s a way of saying, “We don’t like this thing, but we don’t want to say exactly why, so we’ll just say it’s like that other thing we don’t like.”
This gets to the heart of the different perspective the two parties bring to questions of the economy and government’s role in regulating it. The conservative perspective is essentially laissez-faire: if financial advisers take advantage of their clients, well, that may be regrettable, but we don’t want the government to actually do anything to prevent it, because we have to let the market do what it will. And when it comes to the affirmative policy changes they want to make, for ordinary people most of it involves waiting for things to trickle down. Let us cut taxes on the wealthy and reduce regulations on corporations, they say, and that will create the conditions that will foster economic growth, so that at some time in the future it will be easier for you to find a good-paying job (those getting the tax cuts and regulatory breaks, on the other hand, get their benefits right away)
Liberals, in contrast, are comfortable with making policies like the fiduciary rule — or increases in the minimum wage, or paid family leave, or more inclusive overtime rules — that are designed to deliver immediate benefit to ordinary people. And as complicated as economic policy can sometimes get, most voters can understand this fundamental difference. That’s why Republicans constantly have to struggle to explain why they actually have ordinary people’s interests at heart, and why Democrats can just say, “Yep, there go the Republicans again, just trying to help the rich and screw the little guy,” and voters nod their heads in recognition. Republicans may think it’s unfair, but when they oppose things like the fiduciary rule or try to shut down the Consumer Financial Protection Bureau (protecting consumers, egad!), what do they expect voters to conclude?
Both Hillary Clinton and Bernie Sanders came out in favor of the fiduciary rule last fall; it remains to be seen whether they’ll bring it up again on the campaign trail. But as Pollack notes, the change might not have been possible without the attention it has already gotten. Though people in positions of power often say, “good policy is good politics” as a way of claiming that they have only the purest of (non-political) intentions for their decisions, sometimes exactly the opposite is true.
“This is an example where good politics is actually critical to good policy,” Pollack says, “because if this had been decided quietly in Congress, there’s a good possibility it would have been weakened.” The more attention it got, the more room the administration had to do the right thing. And now that they have, Democrats should keep talking about it.
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