Home' Trinidad and Tobago Guardian : March 1st 2015 Contents SBG10 STOCKS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt MARCH 1 • 2015
After years of a Wash-
ington dispute over
investment advice, the
is proposing tougher
restrictions on brokers
who manage Ameri-
accounts. The change would put brokers---
who sell stocks, bonds, annuities and other
investments---under the stricter requirements
for registered financial advisers.
That could alter the types of investments
a broker recommends to you for your retire-
ment account. Their advice could move away
from riskier investments. And a broker may
have to tell you when they have a conflict of
interest regarding a financial product---like
receiving fees---that could prevent them from
putting your interest first in recommending
it. The Labor Department will put forward the
proposal, making it available for public com-
ment for several months.
Americans increasingly are seeking financial
advice to help them navigate an array of options
for retirement, college savings and more. A
lot of people provide investment advice, but
not all of them are required to disclose potential
conflicts of interest.
The management of trillions of dollars in
retirement accounts like 401(k)s and Individual
Retirement Accounts could be affected. About
US$4.5 trillion sat in 401(k) retirement accounts
as of last Sept. 30, plus US$2.2 trillion in other
defined-contribution plans such as federal
employees plans and US$7.3 trillion in IRAs,
according to the Investment Company Insti-
tute, an industry group.
The proposal would bring a stricter regime
for brokers handling retirement accounts, mak-
ing them fiduciaries. Fiduciaries are obligated
to put their clients interests first.
A new report from the White House s Coun-
cil of Economic Advisers concludes that
investors lose billions of dollars a year because
of brokers conflicts of interest.
President Barack Obama drew attention to
the proposal in an address at AARP head-
quarters Monday, saying it s aimed at pre-
venting financial professionals from "bilking
hardworking Americans out of their retirement
Some questions and answers:
What's the difference?
It s significant. Brokers buy and sell securities
and other financial products on behalf of their
clients. They also can give financial advice,
with one key requirement. They must rec-
ommend only "suitable" investments based
on the client s finances, their age and how
much risk is appropriate for him or her.
So they can t pitch penny stocks or real
estate investment trusts to an 85-year-old
woman living on a pension, for example. But
brokers can nudge clients toward a mutual
fund or variable annuity that pays the broker
a higher commission; without telling the client.
Brokers don t have to disclose that potential
conflict of interest.
Registered investment advisers, on the other
hand, are "fiduciaries" like doctors or lawyers.
By law they are considered trustees for their
clients and are obligated to put the clients
That means disclosing potential conflicts
as well as fees they receive and any previous
disciplinary actions against them. They must
tell a client if they, or their firm, receive money
from a mutual fund company to promote a
product. And they have to register with the
Securities and Exchange Commission, opening
them to possible close inspections and super-
What would the Labor
Department proposal do?
It would put brokers under the stricter
requirements when they handle clients retire-
ment accounts. The Labor Department has
been grappling with this issue for years. Labor
withdrew an earlier proposal in 2010 amid an
outcry from the financial industry, which said
it would hurt investors by limiting choices.
The proposal updates the Employee Retire-
ment Income Security Act, known as ERISA,
enacted in 1975.
That was a drastically different time, with
traditional company pension plans still the
dominant source of retirement income and
401(k) plans not yet born.
(Companies began adopting 401(k)s in 1979,
enabling workers to set aside pre-tax money
from their paychecks for retirement and allow-
ing for employer contributions.)
So the fiduciary requirement
may be expanded. What's
the argument for that?
A coalition of consumer, labour and civil
rights groups called SaveOurRetirement has
been stirring up support for Labor Department
action. It says the current system provides a
loophole for professionals giving investment
advice that through higher fees, can drain
away thousands of dollars from a single retire-
Losing a bit each year to fees can add up
to a lot over time for retirement savers, says
David Certner, legislative policy director at
AARP, a coalition member. "It s the difference
between an earthquake and termites," he sug-
gested. A quake s impact on your house is
immediate and obvious, but termites can chip
away at it over a long period.
And the other side of the
Among the opponents are the Securities
Industry and Financial Markets Association,
the brokerage industry s big lobbying group,
and the Financial Services Roundtable, whose
members include the largest banks. They
take the opposite tack: That retirement savers
who get advice from a securities industry
professional usually wind up with fatter
A memo issued by the roundtable warns
that the proposal "will likely limit many
American workers access to financial guid-
ance, investment products and access to
professional retirement planning from qual-
ified financial professionals."
And that would fall especially hard on
mid- and low-income employees with small-
er retirement balances, it said.
What about Congress?
Some lawmakers whose powers were aug-
mented by the Republicans victory in the
November midterm elections have stepped
out in front of the administration s move.
Sen. Orrin Hatch, R-Utah, the new chairman
of the Senate Finance Committee, says he
plans to bring forward legislation that would
move authority over fiduciary-duty rules
from Labor to the Treasury Department.
Treasury could be viewed as friendlier
territory toward the financial industry than
And Senator Ron Johnson, the Wisconsin
Republican now heading the Homeland
Security Committee, has asked Labor Sec-
retary Thomas Perez in a letter how his
department will ensure that the proposal
"does not adversely affect middle and low-
How govt action could
advice from brokers
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