Tougher Rules for Retirement Brokers

President Barack Obama has thrown the weight of the White House behind his plan that would make it difficult for brokers to push higher fee mutual funds or other expensive products on people saving for retirement.  The plan to be issued by the Labor Department would require brokers to act in a customer’s best interest, a change that could limit the earnings of financial advisers in the handling of Americans’ $11 trillion of retirement savings.  Labor Secretary Tom Perez stated, “I’m confident we can actually do more to help the small and moderate savers in the context of the proposal we will be putting forth.”  He further stated, “Financial advisers absolutely deserve fair compensation.  But they shouldn’t be able to take advantage of their clients.”

Former employees of companies such as AT&T, Hewlett-Packard Co. and United Parcel Service, have complained that brokers persuaded them to roll their 401(k)s into high-cost, unsuitable IRA investments.   However, some argue that subjecting brokers to a fiduciary duty will lead to more lawsuits against the industry and add burdensome compliance requirements.  Furthermore, the added costs will likely cause brokers to drop client accounts with less than $50,000 of assets, leaving those investors to manage their own savings. 

See Dave Michaels, Obama Backs Tougher Rules for Brokers on Retirement Funds, Bloomberg Politics, Feb. 23, 2015.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.