broker / financial advisor
=<div><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">n Tuesday, the Department of Labor officially announced a proposed rule change that would require all financial advisers to put their clients’ best interests before their own.</p><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">Currently, brokers who advise people trying to make decisions about retirement savings aren’t legally obligated to steer clients to the best option for their needs. Instead, they can advise clients into products that may make them or their firms more money but may not be the right choice. It’s been estimated that Americans lose <a href="https://www.whitehouse.gov/sites/default/files/docs/cea_coi_report_final.pdf" style="box-sizing: border-box; margin: 0px; padding: 0px; border: 0px; font-family: inherit; font-size: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; font-stretch: inherit; line-height: inherit; vertical-align: baseline; color: rgb(51, 51, 51);">about $17 billion</a> a year to this conflicted advice every year.</p><span id="trigger-slidedown" style="box-sizing: border-box; margin: 0px; padding: 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 22.4400005340576px; vertical-align: baseline; background-color: rgb(255, 255, 255);" /><span style="font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; line-height: 22.4400005340576px; background-color: rgb(255, 255, 255);" /><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">Under the rule change, all retirement advisers — including brokers, registered investment advisers, insurance agents, and others — who get paid to provide retirement investment advice would have to adhere to a fiduciary standard, which would mean they would be obligated to give advice that is in the best interest of their clients. They would also not be able to accept any payments that could create conflicts of interest, such as fees earned for recommending certain financial products, unless they enter into an exemption contact. But Perez noted that advisers will still have broad leeway in their payment structures and still be able to work on commission, revenue sharing, and 12b1 fees, which relate to mutual funds.</p><div id="in-content-ad" style="box-sizing: border-box; margin: 0px; padding: 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 22.4400005340576px; vertical-align: baseline; background-color: rgb(255, 255, 255);" /><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">The Department of Labor’s analysis found that it would save investors more than $40 billion over ten years on the low end.</p><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">On a call with the press, Labor Secretary Thomas Perez noted the proposal is “intended to provide guard rails but not strait jackets” for the industry. To that end, the “best interest exemption contact” would allow firms to keep setting their own compensation practices as long as they commit to putting clients’ interests first. They also have to adopt policies and procedures that minimize any conflicts of interest and “clearly and prominently” disclose those conflicts that may remain. Noting that investment advisers say they put clients’ interests first, Perez said, “This rule will simply codify what they say they are already doing.”</p><p style="box-sizing: border-box; margin: 0px; padding: 0.4em 0px; border: 0px; font-family: 'Open Sans', Calibri, 'Trebuchet MS', 'Lucida Sans', Arial, sans-serif; font-size: 14.960000038147px; font-stretch: inherit; line-height: 1.6em; vertical-align: baseline; background-color: rgb(255, 255, 255);">If firms violate these agreements, it would be considered a breach of contract and customers could enforce it through arbitration. Firms could also face an excise tax for violating the contracts....</p><div>
</div><div></div><div>http://www.nytimes.com/2015/02/14/your-money/fiduciary-duty-rule-would-protect-consumers-and-target-investment-brokers.html?_r=0</div><div>
</div><div><div>If you are in the market for financial advice, good luck figuring out which financial advisers are legally obligated to act in your best interest. There is a big difference between glorified salesman and true investment advisers, and yet the onus is on consumers to sort it all out.</div><div>
</div><div>A long-awaited rule being drafted at the Labor Department, which oversees retirement plans, would try to fix part of this — at least as far as your retirement money goes. The rule, which was supposed to be released last month after the department missed another deadline in August, would require more investment professionals to put their customers’ interests ahead of their own; the legal term for that is fiduciary duty.</div><div>
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</div><div>Protecting workers’ precious, tax-advantaged retirement dollars seems anything but controversial. But drafting the requirement has been a long and arduous process, now four years and counting, with powerful and well-funded opponents in the financial services industry. And in recent weeks, critics are again writing letters to regulators and planning to revive legislation that would quash the rule, which would apply to the $7 trillion sitting in individual retirement accounts, as estimated by the Federal Reserve.</div><div>
</div><div>The latest flurry of activity was prompted by an internal memo from the White House that leaked to the media. The White House memo said it believed the lack of consumer protections cost I.R.A. investors roughly $8 billion to $17 billion annually, or up to 1 percent of their assets, and perhaps more. The memo also signals that the proposal may be inching closer to an internal governmental review, a procedural step that occurs before such rules are released to the public for comment.</div><div>
</div><div>“The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year,” said the memo, dated Jan. 13, from Jason Furman, chairman of the White House’s Council of Economic Advisers, and Betsey Stevenson, a council member. And “many firms have organized themselves on the basis of capturing conflicted payments rather than the delivery of high-quality advice,” they added.</div><div>
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</div><div>In other words, if brokers don’t sell something, they cannot get paid. And, unlike investment advisers, many brokers do not have to adhere to the stringent fiduciary standard requiring them to act in their customers’ best interest. They only need to recommend “suitable” investments based on an investor’s personal situation, taking into account things like age, goals and stomach for risk. That may sound reasonable, but it leaves enough wiggle room for brokers to recommend a perfectly “suitable” mutual fund — but one that pays them more than other available options at the customers’ expense.</div><div>
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</div><div><span style="background-color: rgb(255, 255, 102);">The White House memo said it believed this type of behavior alone may cost I.R.A. investors $6 billion to $8 billion, or 0.35 percent to 0.50 percent of their I.R.A. money annually.</span> It based those calculations on the findings of an academic study that, in one analysis, looked at brokers who recommended a variety of funds unaffiliated with their firms. The researchers found that for every dollar in extra commissions paid to the brokers, they were likely to direct an extra $14 into the fund that paid them more.</div><div>
</div><div>“They are influenced by how much they are paid, and larger payments can tilt a broker’s advice towards poor-performing funds,” said Susan Christoffersen, one of the co-authors, who analyzed Securities and Exchange Commission filings from 1993 to 2009, and is an associate professor of finance at the University of Toronto Rotman School of Management.</div><div>
</div><div>Two other studies cited in the memo, which looked at arguably more dated fund data from the 1990s through 2004, raised questions about why most money in mutual funds is still invested in actively managed funds when they underperform index funds, particularly when they are sold by brokers.</div><div>
</div><div>Ideally, consumer advocates would like the rule to close some of the escape hatches that allow brokers to avoid acting as a fiduciaries when providing advice on money inside I.R.A. and retirement accounts like 401(k)s. The new rules would update the Employee Retirement Income Security Act, or Erisa, which was written in 1975, when pensions reigned, I.R.A.s were in their infancy and 401(k)’s did not yet exist. Nobody knew they would become the dominant vehicles for retirement savings.</div><div>
</div><div>Erisa currently requires a person to act as a fiduciary when providing investment advice, but “advice” is defined quite narrowly. If the advice is provided on a one-time basis, for instance, a broker can avoid the stricter rule. That’s why consumer advocates argue that it is easy for brokers providing advice on I.R.A. rollovers — or any I.R.A. money — to dodge the higher standard.</div><div>
</div><div>“We think all advice should be subject to a fiduciary standard,” said David Certner, legislative policy director for government affairs at AARP. The financial services industry’s resistance to the rule has “been constant and it’s been heavy, and they have already spent a fair bit of money preventing this rule from seeing the light of day. Unless the rule is completely watered down, I’d expect that to continue.”</div><div>
</div><div>According to the financial services industry, a rule to protect investors would actually harm — yes, harm — the average person in need of retirement advice, particularly the smaller investors. How so? The costs of compliance with the new rule may be too high to work with holders of modest savings they argue, or the advisers may be forced to put such investors into more expensive accounts that charge a percentage of the assets being managed....</div></div><div>==</div></div>