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U.S. NEWS A7
Thursday 7 April 2016
US Financial Front:
How stricter rules for brokers will affect retirement savers
MARCY GORDON ployer-based 401(k) assets Kayla Mitchell makes sandwiches at Good Day Cafe in North Security Act, known as
AP Business Writer into individual retirement Andover, Mass. The Obama administration is going after a host ERISA, enacted in 1975.
WASHINGTON (AP) — High accounts. Brokers may per- of perceived rip-offs with proposed new rules for brokers who That was a far different
fees. Conflicts of interest. suade them to put those recommend investments for retirement savers in America. time. Traditional company
Inappropriate investments. assets into variable annui- pension plans were still the
The Obama administration ties, real estate investment AP Photo/Elise Amendola) dominant source of retire-
is going after a host of per- trusts or other investments ment income. Now, tradi-
ceived rip-offs with the new that can be risky or other- key stipulation: They must faced. tional pensions are increas-
rules it’s unveiling Wednes- wise not in the client’s best recommend only invest- Advisers must tell a client ingly gone. In their place
day for brokers who rec- interest. The administration ments that are “suitable” if they or their firm receive are 401(k)-type plans,
ommend investments for has said investors will save for a client based on his or money from a mutual fund which require workers to
retirement savers. about $4 billion annually her age, finances and risk company to promote a set aside pre-tax money
No longer will brokers who under the new rules. The tolerance. product. And they must but also add a new layer
sell stocks, bonds, annuities industry has countered So they can’t, for example, register with the Securi- of risk: Employees them-
and other products be re- that investment firms will pitch penny stocks or real ties and Exchange Com- selves must decide how to
quired just to recommend have to shell out more than estate investment trusts to mission, thereby opening invest their retirement mon-
investments that are “suit- that just to comply with the an 85-year-old woman liv- themselves to inspections ey, and many seek profes-
able” for a client. They’ll rules. Financial firms also ing on a pension. But bro- and supervision. sional advice.
now have to meet a stricter argue that the stricter rules kers can nudge clients to-
standard that has long ap- will likely shrink Americans’ ward a mutual fund or vari- WHAT DO THE NEW LABOR AND THE OTHER SIDE?
plied to registered advisers: investment options and able annuity that pays the DEPARTMENT RULES DO? Wall Street lobbying
They will be considered “fi- could cause brokers to broker a higher commission They put brokers under the groups, mutual fund com-
duciaries” — trustees who abandon retirement savers — even without disclosing stricter requirements when panies, life insurance firms
must put their clients’ best with smaller accounts. that conflict of interest to they handle clients’ retire- and other industry interests
interests above all. Americans increasingly the client. ment accounts. The Labor have opposed the rules
The new rules, to be phased seek guidance in navigat- Registered investment ad- Department has grappled as proposed last year and
in starting a year from now, ing their options for retire- visers, on the other hand, with the issue for years. pushed the Labor Depart-
follow intense lobbying by ment savings. Many profes- are “fiduciaries.” In that The department withdrew ment to revise them.
both consumer advocates sionals provide advice. But way, they’re more like doc- an earlier proposal in 2010 They say the stricter re-
and the financial industry. not all are required to dis- tors or lawyers — obligated amid an outcry from the quirements could limit
Full compliance will be re- close potential conflicts of to put their clients’ inter- financial industry, which many people’s access to
quired by January 2018. interest. “This is a huge win ests even ahead of their warned that it would hurt financial guidance and re-
At stake are about $4.5 for the middle class,” Labor own. That means disclosing investors by limiting choic- tirement planning and their
trillion in 401(k) retirement Secretary Thomas Perez fees, commissions, poten- es. choice of investment prod-
accounts, plus $2 trillion in said Tuesday in a confer- tial conflicts and any disci- The rules update the Em- ucts. They warn that that
other defined-contribution ence call with reporters. plinary actions they have ployee Retirement Income would fall especially hard
plans such as federal em- “We are putting in place on mid- and low-income
ployees’ plans and $7.3 a fundamental principle of employees with smaller re-
trillion in IRAs, according to consumer protection.” tirement balances — say,
the Investment Company Here are some questions less than $50,000 — who
Institute. Too often, regu- and answers: could be abandoned by
lators say, brokers steer brokers.
clients toward question- BROKERS? FINANCIAL AD- The new requirement to
able investments for which VISERS? WHAT’S THE DIFFER- act in a client’s best inter-
the broker receives a fee, ENCE? est means, in many cases,
thereby acting in their own It’s significant. Brokers buy that the practice of charg-
financial interest instead of and sell securities and ing commissions on every
the client’s. other financial products trade would be replaced
The problems often arise on behalf of their clients. by a set fee for a broker as
when people who are re- They also can provide fi- a proportion of a custom-
tiring “roll over” their em- nancial advice, with one er’s assets.q