Late Bloomer Wealth

Stopping Financial Conflict of Interests

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

CalSTRS (California State Teachers Retirement System) chimes on on the conflicted advice report: http://www.calstrs.com/blog-entry/conflicted-advice-costing-you-new-study-says-yes

Excerpt from the CalSTRS report: “CalSTRS remains vitally interested in having our members participate in savings plans as California’s educators do not receive Social Security for their CalSTRS-covered employment. When our members retire and take distributions from their Defined Benefit Supplement and Cash Balance accounts, we know that many of them roll their account balances into IRAs. It would be of great benefit to see more safeguards around investment strategies offered by financial advisors as this is very relevant to not only our members receiving a fair deal in retirement, but all working families.”

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

Supreme Court Rules on the Glenn Tibble 401(k) case: Case: http://www.bloomberg.com/news/articles/2015-05-18/401-k-plans-must-monitor-investments-u-s-supreme-court-rules

Some professionals say that the real change and subsequent battle for fiduciary responsibility is here: http://www.thinkadvisor.com/2015/05/15/forget-fiduciary-real-battle-coming-over-harmoniza?eNL=555f5160160ba07122ccb112&utm_source=topstories052415&utm_medium=enewsletter&utm_campaign=topstories&_LID=140192270

More fallout:

This battle between the DOL regulators and the industry is hilarious. All the industry has to do is simply disclose objective financial information regarding all fees in all presentations and sales to participants: commissions, 12(b)1 fees, revenue sharing and how those fees impact on the participants’ nest egg over a course of a career.

http://www.investmentnews.com/article/20150612/BLOG09/150619965/supreme-court-decision-in-401-k-case-may-have-profound-effect-on?issuedate=20150619&sid=RPAEMAIL&utm_source=RetirementPlanAdviser-20150619&utm_medium=email&utm_campaign=investmentnews&utm_term=text

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