A journalist will normally review a book soon after publication, but the importance to financial advisors of a new volume taking a global view of the market for retirement financial advice warrants a preview.
The Pension Research Council (PRC) at the University of Pennsylvania’s Wharton School on Friday released a working paper, “The Market for Retirement Financial Advice,” which introduces chapters in the forthcoming book (slated for publication this fall by Oxford University Press).
The book is edited by Wharton professors Olivia Mitchell (left) and Kent Smetters, two PRC-affiliated Wharton professors whose names should be familiar to AdvisorOne readers. Mitchell, the PRC’s executive director, is one of the nation’s foremost experts on retirement security, and in 2010 received the Retirement Income Industry Association’s award for achievement in applied retirement research. Smetters, though primarily a scholar, actually rolled up his sleeves and created a full-service financial services firm called Veritat, which sought to provide comprehensive and affordable advice to middle-class investors. He sold the firm last month to LPL.
“Financial advisors play a key role in helping their clients meet their life goals,” Smetters (right) told AdvisorOne. “But the financial advice industry is rapidly changing, providing both new challenges and opportunities. Our intent…is to help advisors and policymakers understand these changes, ultimately to the benefit of consumers.”
Citing Labor Department estimates that uninformed investors lose billions of dollars each year though financial mistakes, Mitchell and Smetters’ project is geared to increasing both the quality and quantity of financial advice.
Consumers, they say, face increasingly complex financial decisions regarding when to stop working, when to claim Social Security, how much to withdraw from retirement accounts and whether and when to annuitize retirement assets.
And surveys show millions of people want to discuss these issues with a trusted professional advisor. Indeed, the authors cite research saying some 15 to 32 million households would like to pay for this service, but not all avail themselves of financial advice, viewing it as conflicted or unaffordable.
The current market mismatch between services wanted and provided may undergo change as the result of a “regulatory renaissance” underway on a global scale. The U.K. and Australia have already banned commission-based financial advice, but Mitchell and Smetters note the effort to adopt a universal fiduciary standard in the U.S. has been bogged down by regulatory fragmentation and industry resistance.
Specifically, the division of regulatory responsibility for financial advisors among the SEC, FINRA and the states, and the existence of two competing standards of care—a suitability standard for broker-dealer reps and a fiduciary standard for investment advisors—result in confusion in the marketplace. (And the authors note that dually registered advisors operating as both RIAs and broker-dealer reps only compound the problem.) Meanwhile, competing financial regulatory legislation adds further to the uncertainty, as both the SEC and FINRA now have claims to provide oversight of investment advice.