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NAIFA, Financial Planning Coalition quick to respond to Obama comments on tougher standards for brokers

Brian Anderson

In a speech to AARP on Monday in Washington, President Obama called for tougher standards on brokers who manage retirement savings accounts as the Labor Department submitted a proposal to the White House that would require brokers who sell stocks, bonds, annuities and other investment products to disclose to their clients any fees or other payments they receive for recommending certain investments.

The remarks and the proposed rule drew a predictably quick response from Wall Street and also industry associations on either side of the fiduciary standard issue.

A Feb. 23 White House press release said financial advisors are often compensated through fees and commissions that depend on their clients’ actions. “Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line,” the release stated.

“If you are working hard, if you are putting away money, if you are sacrificing that new car or that vacation so you can build a nest egg for later, you should have the piece of mind of knowing that the advice you are getting for investing those dollars is sound,” Obama told the AARP audience Monday. “These payments, these inducements incentivize the brokers to make recommendations that generate the best returns for them but not necessarily the best return for you.”

NAIFA responded by issuing a statement from NAIFA President-Elect Jules Gaudreau, ChFC, CIC, expressing concern that a rule that would endanger the business model that has allowed NAIFA members to successfully help their middle-market investor clients for decades would very possibly harm the people it is designed to protect.

“While we have not seen the new proposed rule, the White House report states commission-based compensation models create inherent conflicts of interest. Wrap fees don’t serve all clients well, and charging fees for assets under management can also create conflicts of interest. The bottom line is there is no ‘one size fits all’ approach that will work for all investors,” Gaudreau said. “Based on the recent assertions by the Administration, we believe the likely result of the pending DOL regulation will be that professional investment guidance for retirement savings will become more expensive or not available at all for small accounts or individual plan participants. Middle- and lower-market investors would have a hard time finding wealth managers willing to work with them and they would be left without any professional guidance to secure their financial future.”

Gaudreau added that NAIFA members are already highly regulated under the suitability standard of care. “Suitability, as enforced by the Financial Industry Regulatory Authority (FINRA), is a very robust standard, governed by no fewer than sixFINRA rulesand more than a dozen Regulatory Notices and Notices to Members,” Gaudreau said. “As the OMB reviews this proposal, NAIFA strongly advises that any new DOL rule protect the ability of millions of Americans to continue to receive low-cost investment guidance about their retirement accounts. Congress also needs to ensure that the SEC and DOL rules do not create conflicting standards for those offering investment information or advice.”

The Financial Planning Coalition – including the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors – issued a release stating its support for the proposal: “Today’s White House announcement in support of the Department of Labor’s fiduciary rule proposal is a strong sign that investor protection is a priority for this Administration. Given the significant changes to retirement saving since the passage of ERISA, it is entirely appropriate for the DOL to reevaluate the 40 year-old rule defining the fiduciary standard for those financial professionals providing investment advice to retirement savers. We look forward to reviewing the department’s proposal, and urge OMB to complete its review of the rule in a timely fashion. Saving for a decent retirement is a fundamental part of life for every American. Those who work hard and save for the future deserve financial professionals whose primary concern is the best interests of their clients and not their bottom line.”

• What’s your take on President Obama’s push for the DOL rule? Sound off on this new thread.



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