All Eyes on SEC Chief to Move Fiduciary Forward, FINRA’s Ketchum Says

Ketchum told ThinkAdvisor that “we’re more than willing to be in a dialogue with the SEC and, for that matter, the Labor Department” on a fiduciary rulemaking. “We really care about moving to the best interest standard [and] we will be responsive to anything the SEC thinks we should move forward on” in this regard.

SIFMA released the same day a study titled “Review of the White House Report: ‘The Effects of Conflicted Investment Advice on Retirement Savings’” that it commissioned the National Economic Research Associates (NERA) to perform. SIFMA said the study identifies “flaws” in the White House’s Council of Economic Advisers’ claim that such advice costs Americans $17 billion a year. “The White House report posits that U.S. investors, in the aggregate, bear large costs because of the services provided by brokers who act in their own best interests, rather than the investors,’” the NERA report states. “While the report points to academic literature to support these aggregate cost estimates (a baseline number of $17 billion), the estimates are not directly found in the academic literature. Instead, the aggregate costs are calculated by the authors of the Report themselves, who make generalizations and extrapolations which they often do not fully support.”

The NERA report goes on to say that to calculate the aggregate estimate, “the authors of the report take the total value of load mutual funds in IRAs, plus the total value of annuities in IRAs, [which] at year-end 2013 stood at approximately $1.7 trillion. The report then claims that a survey of the academic literature supports a finding that savers lose about 1% per year due to conflicted payments. By multiplying these two numbers together, they produce the claimed aggregate cost number. This approach is flawed in multiple ways.”

The NERA report also states that the administration ignores the negative consequences of similar retirement regulations in the U.K., noting that “a sizeable number of low-balance clients lost their advisor. [Consultancy] Europe Economics finds that just in the first three months of 2014, about 310,000 clients stopped being served by their brokers because their wealth was too small for the broker to advise profitably.” An additional 60,000 investors were not accepted as new clients by brokers for the same reason over the same three months, NERA says.

Lisa Bleier, SIFMA’s managing director, Public Policy and Advocacy, noted on a call with reporters that DOL sent its fiduciary redraft to the Office of Management and Budget on Feb. 23 and that the redraft “probably won’t be there for the full 90-day” review period. The measure will likely be proposed by DOL in spring or early summer, she predicted.

Bensten noted on the call the “strong bipartisan opposition” to the prior rule issued by DOL in 2010, stating that he believes “there is still a bipartisan” opposition to the direction DOL will take with its new plan.

He stated that the White House report is “at best simplistic and has some problems,” adding that as this fiduciary “process goes forward it’s important to lay out all the facts.”

— Related on ThinkAdvisor:

• White House Is Not Fond of Hidden Retirement Fees
• DOL Has Worked ‘Very Closely’ With SEC on Fiduciary Plan: Perez
• GOP Reps Demand Proof DOL Didn’t Go It Alone on Fiduciary
• Deconstructing One Broker’s Take on a Fiduciary Standard
• A Fiduciary Standard May Leave Some Investors Out of Luck