Fiduciary Push Expected after SOTU
By Arthur D. Postal
InsuranceNewsNet
WASHINGTON – A revised proposal to change the standard that agents must use in selling investment products in retirement plans is expected to be released after the State of the Union address.
The administration is already prepared to defend the Department of Labor rule with an economic justification document that is seen as a key to getting a court to uphold the regulation if it is finalized but then challenged in court.
The economic justification document, obtained by InsuranceNewsNet, purports to show that consumer protections for investment advice to the retail and small plan markets are inadequate and that the current regulatory environment “creates perverse incentives that ultimately cost savers billions of dollars a year.”
The justification document said evidence through various studies indicates these costs arise from incentives to steer savers into higher cost products within the IRA market.
Moreover, the document says, the current regulatory environment allows fund sponsors and advisory service firms to create incentives for their advisors to recommend excessive churning (repeated buying and selling) of retirement assets and to steer savers into higher cost products with financial payoffs for the advisor.
In comments today about his plans as chairman of the Senate Finance Committee, Sen. Orrin Hatch, R-Utah, reiterated his intent to re-introduce legislation that would shift oversight over IRAs from the Department of Labor to the Treasury Department.
Lee Covington, senior vice president and general counsel at the Insured Retirement Institute, said during a conference call that Hatch has indicated that he will move promptly on his legislation.
Covington said at the same time that IRI had no indication when the Obama administration would release the proposal for comment. But, he said if it was like the one published for comment in 2010 and then withdrawn, final action would face serious problems.
IRI studies indicate that over a 15-year period, under the existing fiduciary standard, plan users who consult professional advice have shown a return 173 percent higher than if they had not consulted a financial professional, Covington said.
A consumer group coalition established a website last week to educate workers and retirees about the “retirement advice loophole” and mobilize support to close it, said a statement from the coalition. Its members include AARP, the American Federation of State, County, and Municipal Employees (AFSCME); the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO); Americans for Financial Reform; Better Markets; the Consumer Federation of America; and the Pension Rights Center.
Covington said he believes the coalition is using hyperbole and inflammatory language to support its case. He also said the website’s conclusions are “contrary to the most objectives studies on the issue.”
Covington added, “We are ready to have the debate [over the need for a fiduciary standard] with them.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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