Stopping a $17 Billion Conflict of Interest
A new U.S. Labor Department rule proposes that broker dealers, insurance agents, wealth managers and other financial planners put their clients’ interests ahead of their own. Doing the exact opposite for decades by putting their interests ahead of clients earns Wall Street and Insurance companies $17 Billion annually. If you have your nest egg invested with these people you remain very important to them. They are going to fight to keep you by claiming that investing is too confusing for you and that revealing the true amounts of money charged to you will be a denial of services.
The purpose of the regulation is to prevent salespeople and brokers from steering unknowing consumers in high-cost poor-performing inappropriate investments. By calling these products “suitable” the industry can avoid the question, “is this an honorable, fair deal?” Of course, they are suitable for the company whose legal department wrote that contract you signed, but perhaps not so good for you. DOL’s proposed change requires a “fiduciary” relationship between the product purveyors and clients. Disclosure of all the costs and thereby obvious conflicts of interest must be disclosed.
Who doesn’t like this? The broker-dealers, insurance companies, and other financial intermediaries who may stand to lose commissions earned from conflicted advice. Conflicted refers to the conflict of interest when sales are made for the benefit of the financial and insurance company reps, not to the client. They won’t tell you all the costs today, and they don’t want to tomorrow.
President Obama and Elizabeth Warren took the podium last week to challenge mutual fund backdoor payments made without your knowledge, while selling you low-performing products. It’s easy to find out if this means you. Look at your last statement. If you cashed out last years’ performance today, what was your gain last year? What is the total cost of the services you receive?
The Chamber of Commerce and financial group lobbyists will complain that transparency will confuse investors, limit education, trample on choices for low and middle-income Americans, upend their business models, and drowned everybody in fine print.
What may get lost in the brouhaha is that there are two existing fiduciary resources which provide guidance and education, paid on an hourly basis, eliminating the need for those shady indirect payments which continue every year and often with each transaction. Paying for advice out-of-pocket is similar to purchasing time from a CPA or plumber. Don’t sign on for costs that last the duration of your savings plan. Finally someone in Washington is paying attention to industry rip-offs.
References for further reading
Here’s how the DOL’s new fiduciary rule could impact insurance agents: http://www.ibamag.com/news/heres-how-the-dols-new-fiduciary-rule-could-impact-insurance-agents-22161.aspx
LAUSD’s 457(b) oversight committee never need DOL rules. We simply demanded that the 457(b) TPA disclose all fees to all LAUSD employees at all enrollment presentations. Former L.A. Times Financial Reporter, Kathy Kristof, was on hand at this tumultuous meeting and wrote an article about our bold move years before the DOL made transparency proposals: http://articles.latimes.com/2006/oct/23/business/fi-teach23
How to Make Sure Your Retirement Adviser Is On Your Team: http://time.com/author/penelope-wang/
Sheryl Garrett of the fee only fiduciary network of financial advisers was acknowledged by President Obama at the rolling out of the new DOL proposals. Garrett Planning Network is a perfect example of what the proposed new rules requiring all financial advisers to do: http://garrettplanningnetwork.com/the-president-of-the-united-states-quoting-sheryl-garrett/
Obama wants broker kickbacks to disappear. YEAH!!!! We AGREE!!!! http://www.bloombergview.com/articles/2015–01-26/obama-wants-broker-kickbacks-to-disappear-from-wall-street
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