President Backs Fiduciary Standard for Brokers and Financial Advisors when Recommending Investments for Retirement

Representing Investors Nationwide

On Monday, during speech at a AARP event, President  Obama said he supports a department of labor (DOL) proposal that would force investment professionals to put their clients’ interest ahead of their own when recommending retirement investments for accounts governed by the Employee Retirement Income Security Act (ERISA). This is a standard long dictated by the Financial Industry Regulatory Authority (FINRA) and one most of the investing public was already in place.

The proposed rule would expand the number of financial advisers subject to the same fiduciary standard established under the 1974 Employee Retirement Income Security Act by removing a pair of loopholes that currently allows advisers to push their clients toward investments that provide brokers with a substantial pay day but not necessarily in the best interest of the clients. The President argued this new standard would benefit retirees by removing inherent conflicts of interest that currently exist when recommending retirement vehicles.

Obama brought up a study undertaken by the Council of Economic Advisers that revealed investors lose up to $17 billion per year in their IRA's due to their advisers' conflicts of interests. Those advisors that only make one-time recommendations and not ongoing investment advice are currently exempt under ERISA. In addition, most financial advisers also are subject to state and federal securities laws and are regulated by the Securities and Exchange Commission (SEC) as well as FINRA.  They currently have different standards for financial advice than the Department of Labor.

Not surprisingly, the financial services industry is pushing back arguing the new rules would adversely effect the industries compensation structure and  that the changes sought by the President would eliminate many products and services that are currently available to lower- and middle-income Americans making it harder for them to save for retirement.

Industry representatives on Monday urged the DOL to move cautiously when drafting the new rules and corresponding standards.

 

 

 

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