File under “there should be a law”: Wall Street’s biggest banks, their trade groups and many others in the finance industry are relentlessly attacking a proposed rule that would merely require them to put the best interests of their clients saving for retirement first: It is as shocking as it is indefensible that the law today allows brokers and other so-called advisors to put their economic interests above the best interests of their clients saving for retirement. This allowable conflict of interest is due to an outdated 40 year-old rule which the industry has filled full of loopholes that enable them to pocket tens of billions of dollars a year, which should be in Americans’ retirement accounts. The Department of Labor (DOL) has proposed an updated rule that would close the loopholes, end the conflicts of interest and stop these egregious practices.
The DOL published its proposed rule and invited public comment, which is standard practice for rulemaking. However, as it has done from the start, the DOL went even further in ensuring everyone had ample opportunity to express their views: it decided to hold an unprecedented public hearing, which has extended over four days, concluding today. DOL has taken another unprecedented action: it is reopening the public comment period, which will not close until two weeks after the transcripts from the public hearings are made available. Remarkably, these actions are merely the latest of a very long, inclusive rulemaking process that began earlier this year. Ultimately, this rulemaking will benefit from years of input and an unprecedented comment period that will last more than 150 days.
And yet, the industry simply will not stop its scorched earth attacks on the proposed rule and ginning up its allies to stop the DOL from finalizing any rule that will require them to put their clients’ interest first. And, don’t be fooled: while the industry always says it’s for such a best interest rule, it just happens to always be against any such proposal or wants it so full of loopholes that it can still put its economic interests first and above its clients.
As Better Markets has repeatedly made clear, not everyone who gives retirement investment advice is taking advantage of their clients, since many advisers do act in their client’s best interest. But, because the law does not require them to do so, far too many do not. That’s why this rule is so important. It closes a 40 year-old legal loophole and finally requires all brokers and advisers to act in their clients’ best interests. This proposal would ensure more than $43 billion stays in Americans’ retirement accounts every year instead of ending up in Wall Street’s pockets.
The hearings kicked off on Monday, with the President and Chief Executive Officer of Wall Street’s top lobby group Securities Industry and Financial Markets Association’s (SIFMA) “offering” to meet secretly with DOL to discuss their purchased “studies” on the rule, which use secret data hidden from the public and independent scrutiny. The DOL should not grant SIFMA’s request to meet in a nonpublic secret meeting to discuss the industry’s purchased “studies.” In fact, SIFMA’s so-called “studies” should be entirely disregarded unless and until the underlying information and data is publicly disclosed fully in sufficient detail to allow analysis by independent professionals.
Frankly, every time the industry releases some “study” they paid for that just happens to support their self-interested positions (which they regularly do and the media regularly reports it uncritically as if it was “news”), everyone should ask “how come they don’t publicly disclose the underlying data?” and “what do they have to hide?” We think we know: their purchased “studies” simply cannot withstand independent scrutiny and would be shown to be biased, incomplete and unreliable.
In the DOL hearings, Stephen Hall, Better Markets Securities Specialist, testified Tuesday and substantively rebutted the industry’s claims and assertions to weaken and kill the rule. For example, he said:
“At this point in the debate, it is settled that gaps in the DOL’s 40-year old rule have created a flawed system, one that allows advisers to put their own interests ahead of their clients. It is also settled that workers and retirees are suffering terrible losses as a result.”
You can read Mr. Hall’s entire written testimony here.
Leading labor, retirement, consumer, and investor protection organizations have also testified, making clear that DOL’s proposal is a strong rule that’s necessary to help protect Americans saving for retirement, including:
“Almost every week, we see a retiree come into our office who has lost a substantial amount of his life savings…These retirees break down in my office when I explain to them how their investment was lost to conflicted advice…Swift action to confirm a strong fiduciary duty will help prevent this from happening to any other retirees in the future and ensure that, if it does happen, that brokers and brokerage firms that breach this duty will be held accountable,” testified Joseph Peiffer, President, Public Investors Arbitration Bar Association (PIABA).
“Current laws allow advisers to act with enormous conflicts of interest…the proposed rule is workable…and will make unconflicted advice increasingly cost effective,” testified Christopher Jones, Executive Vice President and Chief Investment Officer, Financial Engines
“Those most affected by heavier prices are those with more modest means…the status quo permits trusted advisers to profit at their client’s expense,” testified Sheryl Garrett, Garrett Planning Network.
“Competition in a market where investors can’t distinguish the quality of the advice leads to a race to the bottom,” testified Antoinette Schoar, Professor of Finance, MIT Sloan School of Management.
“The time is long past to ensure that advice provided to those who spend a lifetime working to save and invest for a secure retirement is in their sole interest,” testified David Certner, AARP.
“We believe the Department has hit the ‘sweet spot’ with this proposal – finding a middle ground that protects retirement investors while also accommodating the reasonable and legitimate concerns of the financial industry,” testified Maria Freese, Senior Policy Advisor, Pension Rights Center.
Throughout this year’s long process and at the hearing, Better Markets has been standing up for America’s savers and rapidly and directly responding to industry’s false claims. And it’s important that all Americans concerned about retirement security join in this fight. Stay informed: go to SaveOurRetirement.org to learn more about this issue. And stay engaged: follow us on Twitter and Facebook for the latest news.
Better Markets in the News:
Why Lifting $50B Threshold May Not Be Panacea for Regionals: Why Lifting $50B Threshold May Not Be Panacea for Regionals: American Banker by Rob Blackwell 8/11/2015
Department of Labor to Hold Conflicts of Interest Hearing: USA Today by Charisse Jones 8/7/2015
Bank of England to Look More Closely at Costs of Financial Regulation: Reuters by David Milliken 8/11/2015
DOL Hearings Delve into Tales of Investor Woes and Advisor Fears: Financial Planning by Ann Marsh 8/12/2015
News You Don’t Want to Miss:
Rating Agencies Still Matter – and that is Inexcusable: Financial Times by Nouriel Roubini 8/10/2015
U.S. Appeals Ruling That A.I.G. Bailout Terms Were Too Harsh: New York TImes by Aaron M. Kessler 8/12/2015