financial advisers continue to fleece clients

President Obama seeks legislation to protect consumers from purchasing bad products from financial advisers. Opposition from Republicans and the industry means that there is little chance that his proposal will see the light of day.

President Barack Obama is launching a crackdown on the US pensions industry ….

The proposed rules will require brokers and advisers to abide by a “fiduciary” standard, meaning they must act solely in the best interests of their clients, and are likely to spark a fierce backlash from parts of the pensions industry.

A report from the White House Council of Economic Advisers found … an incentive [for advisers] to persuade consumers to buy bad retirement products — with high costs and low returns — because they earned “backdoor payments and hidden fees” from them. ….

The fiduciary duty rule was proposed in 2010 but abandoned after a backlash from the brokerage industry and Republicans. They warned the rule would put many investment advisers out of business, which would deprive consumers of assistance. ….

Daniel Gallagher, a Republican SEC [Securities and Exchange Commission] commissioner, [responding to the proposed rules] said: “To be blunt, the White House memo is thinly veiled propaganda designed to generate support for a widely unpopular rulemaking.”

Gina Chon and Barney Jopson, “US launches crackdown on pension adviser conflicts“, Financial Times, 23 February 2015 (metered paywall).

Jack Bogle, founder of Vanguard funds, continues to support a federal fiduciary standard. Republicans and nearly everyone in the industry oppose it, however, so Obama’s modest proposal is unlikely to become law.

An FT reader (The Pouca), in an online comment, writes

I for one would like to see the names of companies opposing the rule – so I would know which ones want to be able to rip customers off.  

Any company that lobbies against this rule should be identified in the press so that they can be blacklisted by consumer groups and their customers advised to take a hard look at whether they have been cheated.

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One Response to “financial advisers continue to fleece clients”

  1. While I understand the difficulty of deciding the details of Obama’s proposal, let’s run the opposite idea as one the pensions industry might support:

    “The proposed rules will require brokers and advisers not to abide by a “fiduciary” standard, meaning they must act solely (or largely) in their own best interests rather than in the best interests of their clients. The proposals are likely to attract significant support from the pensions industry.”

    Hmmmm.