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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
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