WASHINGTON Let’s hear it for unhealthy retirement advice!
The Donald Trump administration ordered a review last week of a new federal rule prohibiting conflicted advice to retirement savers, a move that signals its intention to withdraw or defang the regulation. As things stand now, companies have until April 10 to comply with the rule.
What is the White House’s complaint against the so-called fiduciary standard promulgated by the U.S. Department of Labor? “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger,” Gary Cohn, director of the National Economic Council, was quoted as saying in the Wall Street Journal.
This is the sound of ideology roaring loudly – free markets and consumer choice over paternalistic government regulation.
Much is at stake. The DoL rule does require anyone advising clients on their retirement accounts to act in the client’s best interest and earn only “reasonable” compensation – and disclose information to clients about fees and conflicts. (A U.S. District Court judge on Wednesday upheld the rule, in a stunning defeat for the business and financial services groups that had sought to overturn it. )
Investors can sue advisers who fail to meet those standards. And an Obama administration study found that middle-class families are ripped off to the tune of $17 billion annually due to backdoor payments and hidden fees.
If we are going to repeal and revert to a free market-ideology, consumers will at least need reliable, high-quality information to help them make judgments about what is good for them, and what is financial junk food.
A growing number of retirement investors understand the difference. Recent research shows a rising understanding of the value of paying for financial planning advice, and a preference for paying a fee rather than commissions on product sales, which often appear to be “free” to the investor but often lead to conflicts that cost them money over time (reut.rs/2k1nJ5k). And the industry has seen a tectonic shift to low-cost passive investing and software-driven “robo advisory” services.
But investors still must sort through the equivalent of
a clever head feint toward a customer-first pledge from the banks, brokerage firms and insurance companies that have fought the DoL standard tooth and nail, as the Consumer Federation of America noted in a recent study (reut.rs/2jAXnDB).
Call it fiduciary-lite. Consider the marketing pitches you can find online right now:
J.P. Morgan Chase: “Our advisors focus on what YOU need.”
Raymond James Financial: “We believe financial advice is about more than just having a plan. It’s about having the right plan for you.”
Voya Financial: “We’ve already done most of the vetting for you. With a Voya retirement consultant, you know you’re getting a qualified professional who is thoroughly familiar with all of our products and services, able to offer good advice and make sound financial decisions on your behalf.”
This week I contacted these companies and three others – Wells Fargo Co, Edward Jones and Lincoln Financial Group – for comment on the apparent contradiction between this type of language and their opposition to the DoL rule.
I also posed five other questions about transparency they provide to clients to help them understand the cost of their services and competitors’ products; whether they sell only their own proprietary products; how they ensure that client best interests are served when deciding whether to roll over funds from 401(k)s into individual retirement accounts, and how their compensation models have changed to avoid adviser conflicts.
Five of the six companies either declined to comment or did not immediately respond to my query.
NO ‘RIGHT OF ACTION’
Lincoln Financial Group offered via a representative that it supports the “intent of the DOL rule and its overarching goal to further ensure that client best interest is served by increasing transparency of cost and by allowing clients to choose how their financial advisors should be compensated.”
Lincoln added it supports a single standard for all financial products via the U.S. Securities and Exchange Commission (SEC) or Financial Industry Regulatory Authority, and that it opposes a “right of action” created through regulation that applies only to “qualified markets.”
But the SEC has had a decade to approve a standard – as authorized under Dodd-Frank – and has failed to do it.
Ask the trade lobby groups that represent these companies, and they will tell you they support a best-interest standard, but that the DoL standard would raise the cost of advice for middle-class households to prohibitive levels.
This argument has always struck me as nonsense, and a 2015 survey by fiduciary advocates of investment advisers and brokers confirms this. More than 90 percent see no reason that working with a fiduciary adviser should cost more; 83 percent say a fiduciary standard would not price investors out of the market for advice.
The survey solicited anonymous responses to this question: “Do you believe a fiduciary duty for brokers who provide advice would reduce product and service availability for investors?”
Said one dually registered broker and fiduciary adviser: “No. The marketplace would change. Isn’t it time?”
(Editing by Matthew Lewis)