Securities Industry, DOL Fight Over Cost Of Fiduciary Rule

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Securities Industry, DOL Fight Over Cost Of Fiduciary Rule

Labor Secretary Thomas Perez backed a proposal to increase investment advice standards for retirement accounts by arguing that studies showing the need for such a rule are more reliable than those funded by the securities industry that question it.

In a speech last week, Perez quoted the “conservative estimates” of a White House Council of Economic Advisers study showing retirement savers lose $17 billion annually due to brokers selling them high-fee products, which the rule seeks to prevent.

“When you look at all of the peer-reviewed empirical academic studies that have been published in this area, they overwhelmingly support our fundamental position that conflicts of interest are harming American savers to the tune of billions of dollars,” stated Perez.

Perez spoke directly about industry studies: “Most of the industry-commissioned research reaching the opposite conclusion does not meet equally rigorous analytical standards.”

The Securities Industry and Financial Markets Association performed its own review of the White House study, finding it unsatisfactory. Specifically, the review stated that the White House report used “flawed figures” and underestimated the benefits that investors receive from working with a broker.

The Department of Labor’s economic-impact analysis of the rule says that the rule would provide IRA investors gains of between $40 billion and $44 billion over a decade, simultaneously costing the industry between $2.4 billion and $5.7 billion.

The Investment Company Institute, however, claims that the Department of Labor analysis was incorrect in that it failed to consider market performance data.

Sean Collins, Investment Company Institute senior director of industry and financial analysis, stated, “The [Department of Labor] proposal, if adopted as structured, would be very costly for retirement savers of modest means.”

The Investment Company Institute’s study, however, was criticized for failing to state the extent to which broker incentives to put clients in high-fee products reduced returns. Jane Dokko, a fellow in economic studies at The Brookings Institution, stated, “Those conflicts matter for savers.”

A final rule is anticipated for early 2016 so it can be implemented before President Obama leaves the White House.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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