Obama admin scores another win by putting ‘customers first’
Posted with permission.
http://www.msnbc.com/rachel-maddow-show/obama-admin-scores-another-win-putting-customers-first?cid=sm_fb_maddow
Obama admin scores another win by putting customers first
04/07/16 08:40 AM
By Steve Benen
It may not seem like a sexy political issue, and no one has ever accused anyone of using new fiduciary rules for click-bait, but the Obama administration made a pretty interesting move yesterday that consumers will like and Wall Street will not. The New York Times reported:
The rules governing how financial professionals handle the trillions of dollars they invest on behalf of Americans saving for retirement are about to get a lot tougher.
The Labor Department, after years of battling Wall Street and the insurance industry, issued new regulations on Wednesday that will require financial advisers and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients.
The Times added
the administrations new policy sets off one of the biggest upheavals in the financial services industry in decades.
Labor Secretary Thomas Perez told the paper, The marketing material that I see from many firms is, We put our customers first. This is no longer a marketing slogan. Its the law.
Under the current rules, when investors meet with their financial advisers to talk about their IRAs, the advisers operate under something called the suitability standard. As Slates Helaine Olen explained, this standard allows finance-industry professionals to make suggestions for retirement investments that take into account how clients investments buttress their own bottom line. The advice just couldnt be out-and-out malfeasant.
Your adviser cant direct you to an invest he or she knows to be bad for you, but he or she isnt required to recommend the best possible option for you, either. If theres a retirement-fund option that would basically work to your benefit, and that also helps your adviser with commissions or rewards, he or she can push you in that direction even if youd make more money following a better path.
According to the Obama administration, this translates into $17 billion a year that could be in investors retirement accounts, but isnt.
So, the administration is scrapping the suitability standard and replacing it with the fiduciary rule that will take effect in 2018 (I know these labels sound dull, but work with me here.)
Investment firms, not surprisingly, arent at all pleased, and the industry has been fighting against these changes for quite a while. The U.S. Chamber of Commerce is threatening a lawsuit to block the regulation, and congressional Republicans are already complaining about this horrible new burden on the industry.
But given that the industry has already been following the fiduciary rule when it comes to 401k plans, heres hoping finance professionals will find a way to manage.