The White House believes that many retirement plan participants aren’t adequately protected from advisors with conflicts of interest.
That’s why President Barack Obama’s chief economic advisor supports the Department of Labor’s effort to amend the definition of fiduciary in retirement plans.
In a Jan. 13 internal memo to senior White House advisors that was obtained by ThinkAdvisor, Jason Furman, chairman of Obama’s Council of Economic Advisers, states that the redraft “represents a middle ground,” and that he agrees with DOL that the current regulatory environment allows brokers to give “conflicted” advice, which costs retirement savers more than $6 billion a year.
Furman and Betsey Stevenson, another council member, provide what they describe as “evidence” that proves DOL’s draft “Conflict of Interest Rule for Retirement Savings,” which seeks to broaden the definition of who is a fiduciary under the Employee Retirement Income Security Act, is sorely needed.
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(In a footnote, the writers say the memo “uses the term financial advisor broadly to include brokers.The allocation of the harms of conflict to different advice channels is beyond the scope of the memo.”)
ThinkAdvisor reported last July that the White House’s National Economic Council would be performing “industry outreach” regarding the DOL’s fiduciary redraft. The NEC was part of a White House working group charged with overseeing the DOL fiduciary redraft.
Furman and Stevenson note that while DOL’s plan allows businesses to “continue using existing, conflicted business models,” it requires that they adopt “additional consumer protections such as ensuring advisors follow a best interest standard, enacting policies and procedures to manage and mitigate conflicts, and refraining from certain self-dealing transactions.”
The measure doesn’t ban commissions, as some other countries have done.
The DOL redraft “offers consumers meaningful protections, especially by also newly facilitating enhanced enforcement over violators, thereby holding them accountable,” the two economic advisors say.
However, Andy Blocker, executive vice president of policy and advocacy at the Securities Industry and Financial Markets Association, told ThinkAdvisor Friday that the memo “fails to address the potential impact” of DOL’s redraft “on everyday investors, which has been our concern all along.” The memo “doesn’t mention anything regarding the impact of a rule change on how people get their financial help,” he said, adding that 80% of people choose to put their money in a brokerage account.
The Financial Services Institute, a staunch opponent of DOL’s fiduciary rulemaking, declined to comment on the memo.