Obama and Retirement Accounts
President Obama wants to protect retirement accounts from hidden fees and broker conflict of interest(1). His focus is on expensive retirement investments that result in high commissions for brokers, but low return for investors. He wants brokers to be held to a high “fiduciary standard” by placing their client’s needs before their own.
As a former stockbroker, I can confirm that a conflict of interest does exist. When brokers are paid with commissions, there is a natural tendency to try to maximize one’s income. Sometimes brokers are instructed to sell proprietary or higher commission products. A prior solution to this was to use a fee based adviser rather than commission based broker. However, this can be a one to two percent fee that can reduce your return as well.
The intent is not to ban commissions, but to regulate them along with broker advice. There is an ethical obligation to match the investor with the appropriate investment, but this is not always done. New regulation is opposed by most brokerages firms since they stand to lose revenue.
Republicans are opposed to any further regulation to “preserve options for Americans to obtain financial advice”. That sounds good, but some options are just not good for the investor. So, Republicans take their typical stance of opposing anything Democrat rather than coming up with a better proposal.
Wall street demands clarity from the firms they invest in, but they are not quite willing to provide that to their clients. The many baby boomers retiring will demand clarity from their advisers or they will go elsewhere. As the number of retired folks increases, so does their voting power. Politicians need to understand the importance of safety and sustainability of retirement investments. This is absolutely vital to the retired and they will fight for it. L.J.
1. Mason, J., Lynch, S.N.(2-23-2015)”Update 3-Obama takes aim at brokers’ fees on U.S. retirement accounts” Reuters. Retrieved on 2-25-2015 from:http://www.reuters.com/article/2015/02/23/usa-fiduciary-idUSL1N0VX01820150223