Fiduciary hypocrisy and investment advisors

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It is difficult to imagine a more hypocritically named piece of legislation than the Retail Investor Protection Act

If you haven’t been following this closely, you might not know that certain retirement investment advisors in the US are not fiduciaries to their clients. That means they have the same requirement to put the client’s interest before their own as a used car salesman.

Lets say someone is rolling over retirement money from a 401(k) to an IRA after a job change, a very common situation. At issue is a substantial chunk of money, tens to hundreds of thousands of dollars. The person rings up an advisor – where to invest?

Under current rules, the advisor can steer the client into an investment that pays the advisor a higher commission, but is less suitable for the client, than an alternative investment that is more suitable, but will generate a lower commissions. They do not have to act as a fiduciary, putting the interests of the client first.

The fact is that other financial advisors are already fiduciaries, and the public has an expectation that they will be served by a uniform fiduciary standard when dealing with such an important transaction. It has been pretty obvious for some time that this is a gap that should be closed, and Dodd-Frank included language to that end.

A problem has been that there is a division of responsibility between the Department of Labor and the SEC on this, and groups that want to avoid these rules coming into force have used that to delay action. SIFMA, I’m looking at you.

SIFMA and other industry groups should drop their resistance to this uniform standard and get on board. Do you really want to be seen as protecting the lowest scum in the industry, the ones who are going to get sued eventually for steering old ladies into foreign currency speculation?

To be clear, the Retirement Advisor Hypocrisy Protection Act will never become law. President Obama has already promised to veto it, if the Senate ever agreed to its passage. By supporting this legislation, SIFMA and similar groups are just confirming to the public the need for regulation of the industry, and confirming the low regard they hold it in.


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