Tuesday, August 18, 2015

Don't believe securefamily.org

I've seen a couple of ads recently lamenting new government regulations that supposedly would make it impossible for middle-class workers to afford investment guidance. The ads direct people to contact their Congressional representatives, referencing securefamily.org for more information.

These ads were so frustratingly vague and oblique that I checked out the site for myself. It turns out the group "is a partnership of America’s financial advisors, life insurance agents, and life insurance companies". Specifically:

The Secure Family Coalition includes the American Council of Life Insurers (ACLI), Association for Advanced Life Underwriting (AALU), GAMA International, Insured Retirement Institute (IRI), National Association for Fixed Annuities (NAFA), National Association of Independent Life Brokerage Agencies (NAILBA), and National Association of Insurance and Financial Advisors (NAIFA).
So what's got their panties in a bunch?

Here's the quick answer according to a PDF of the group's talking points.

On April 20, 2015, the Department of Labor (DOL) released a significant, detailed new proposal to change the definition of fiduciary under ERISA. The new rule broadly defines a fiduciary to include persons who make recommendations to individuals or plan sponsors regarding investments, annuities and other insurance contracts, and rollovers and distributions.
What does this actually mean?

What the insurers aren't telling you is that the Labor Department's proposed new rule addresses a significant shortcoming in the regulations governing financial advisors. At present, not everyone who's legally allowed to give you investment advice is required to put your interests first. Some of them are allowed to steer you toward investments that enrich them even if those investments aren't the best ones for you. The Labor Department wants to tighten up the rules so the people you expect to look after your best interests are legally required to do so. Per a letter from the "Committee for the Fiduciary Standard":

After years of thoughtful analysis and consultation with all stakeholders, the Department of Labor has drafted a comprehensive proposal that closes loopholes in the definition of investment advice so that anyone who provides individualized investment recommendations to retirement savers -- whether they are saving through a traditional or defined contribution pension plan, such as a 401(k), or an Individual Retirement Account (IRA) -- would be required to provide best interest advice to their clients. Importantly, the proposed rule would eliminate outdated requirements that advice must be ‘regular’ or serve as the ‘primary basis’ for an investor’s decision, before the best interest standard applies. In a significant improvement over the 2010 proposal, it covers advice about recommendations to roll money out of a pension or 401(k) plan and into an IRA. This is the most important financial decision many people will ever make, with a potential to seriously affect their standard of living in retirement, and is a special area of concern given extremely troubling practices identified in a GAO report.
Now, I have to note that the so-called Committee is itself "a group of investment professionals and fiduciary experts" — not exactly a set of disinterested observers. However, the insurers' argument is a notably weak one. Who are these people who won't be able to offer you their low-cost investment advice if the Labor Department's proposed rule goes into effect? The people who aren't required to put your best interests first.

Is it worth getting advice from people who aren't legally required to look out for you?

Don't be fooled by securefamily.org. Its members aren't concerned about you. They're concerned about their profits — or rather, being able to profit off of you.

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