Wall Street Doesn’t Like Obama Plan on Retirement Brokers’ Fiduciary Duty

By | May 27, 2015

The head of Wall Street’s self-regulator criticized the Obama administration’s effort to impose stricter standards on brokers who manage retirement accounts, saying the rule would make it difficult for smaller investors to get advice.

In a speech Wednesday, Financial Industry Regulatory Authority Chief Executive Officer Richard Ketchum said that the Labor Department’s April proposal would create new legal risks for brokers and probably reduce the number of investment options they would offer.

Ketchum’s remarks echo Wall Street’s concerns. The industry has spent more than four years lobbying against the Labor Department’s effort. Led by banks such as Morgan Stanley and Wells Fargo & Co., the industry has argued that costlier regulations could take away options for smaller investors.

Under current rules, brokers’ recommendations must be “suitable” for clients, meaning the investments have to fit the customer’s needs and tolerance for risk. The Labor Department rule would impose a fiduciary duty requiring brokers who manage retirement money to put their clients’ interests first.

The Labor Department argues that investors are vulnerable because brokers often receive compensation from mutual funds and other companies in return for selling their products. White House economists also raised alarms about the practice, saying investors lose as much as $17 billion a year to inferior products and “backdoor fees.”

Ketchum said that some criticism of the brokerage industry is unmerited.

“Depictions of the present environment as providing “caveat emptor” freedom to broker-dealers to place investors in any investment that benefits the firm financially with no disclosure of their financial incentives or the risks of the product, are simply not true,” he said in the speech.

Ketchum said he supports the higher standard for brokers providing investment advice to retail investors, but said the rule should be written by the Securities and Exchange Commission. SEC Chair Mary Jo White said in March that the agency would pursue tightening the rules.

Editor’s Note:

The Bipartisan Policy Center today is hosting a webinar with voices on all sides of the debate on this proposed fiduciary standard.

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