Obama administrationís proposed rule to provide better
consumer protection for retirement savings is a welcome
will benefit consumers, many of whom canít distinguish
among the different types of financial advisers, much
less tell whether an adviser is putting their interests
proposed rule, recently announced by U.S. Department of
Labor, would require stockbrokers and other advisers to
act in their customersí best interests when handling
their retirement money. This is called "fiduciary
only registered investment advisers are legally required
to adhere to the fiduciary standard.
brokers operate under the "suitability rule,"
which requires them to make investment recommendations
based on a belief that a transaction or strategy is
"suitable for the customer."
determined by evaluating such factors as an investorís
age, other investments, financial situation and needs,
risk tolerance, tax status, investment goals and
of the suitability rule said itís a weaker standard
that allows for conflicts of interest and high-fee
products that eat away at returns over time.
and managing IRA investments can be a challenging and
time-consuming task, frequently one of the most complex
financial decisions in a personís life, and many
Americans turn to professional advisers for
assistance," according to a February report by the
White House Council of Economic Advisers.
financial advisers are often compensated through fees
and commissions that depend on their clientsí
actions," the report said. "Such fee
structures generate acute conflicts of interest: The
best recommendation for the saver may not be the best
recommendation for the adviserís bottom line."
advice leads to lower investment returns, the council
receiving conflicted advice earn returns roughly 1
percentage point lower each year," it said.
total, conflicted advice costs investors about $17
billion a year, the economic advisers said.
see everyday what happens when those in and near
retirement lose vast sums of money as a result of
conflicted advice," said Joseph C. Peiffer,
president of the Public Investors Arbitration Bar
Association, a group of lawyers who represent investors
in securities cases.
many investors lose their hard-earned retirement savings
because their brokers sell investment products that pay
a large commission but are not in the best interests of
their clients," Peiffer said. "This is a
system that is broken and must be fixed."
E. Bentsen Jr., chief executive of the Securities
Industry and Financial Markets Association, said his
group is reviewing the proposed rule to "ensure it
protects investor choice and doesnít unnecessarily
reduce access to education or raise costs, particularly
for low- and middle-income savers."
association said adoption of the fiduciary standard
would "limit retirement choices, prevent consumers
from choosing the financial products and advice that fit
their personal needs within their price range, and will
ultimately make saving for retirement harder for working
an average investor whether his or her financial adviser
adheres to the fiduciary standard or the suitability
standard and most likely you would get a blank stare.
current rules on retirement and nonretirement investing
"are so complex, and thereís a lot that falls
through the cracks," said Kathleen M. McBride,
founder of FiduciaryPath, a New York firm that does
fiduciary audits and consulting. "Thatís allowed
a lot of harm to come to investors."
why it would serve investors well if one uniform
standard were adopted for all financial service