Note to state legislators: Voters' retirement security is your responsibility, too

Main Street investors are fully aware that a dignified post-working lifestyle doesn't come cheap.

Dec 16, 2013 @ 8:00 am

By Dale E. Brown

The overall cost of retirement can sometimes seem difficult to grasp, but Main Street investors are fully aware that a dignified post-working lifestyle doesn't come cheap. It takes years of careful planning and discipline to get there, and unnecessary barriers and expenses today can have a disproportional impact on an investor's life after he or she leaves the workforce.

So how would these same investors react if they knew their own state legislators might be working to drive up the cost of retirement even further?

Two recent bills in Minnesota and Ohio would have done exactly that. Early versions of SF 552 in Minnesota and HB 59 in Ohio would have broadened those states' sales tax bases to include all professional services, including financial advice. If these provisions had become law, clients in each of these states would have faced significant new costs — a 5.5% increase in Minnesota, 5% in Ohio — every time they received guidance from or placed a trade through an adviser.

Those costs add up, and over time, they could have created serious new obstacles for investors as they looked ahead to retirement. Workers looking to establish a financial strategy for the first time would have had to think twice before consulting an adviser, while others would have been tempted to postpone crucial financial “check-ups” or re-balancing activities.

In every case, investors would have seen the goal of retirement security receding further away.

Fortunately, the Financial Services Institute and our independent financial adviser members came together earlier this year to put a stop to these proposals. Our calls to action to our members prompted hundreds of concerned letters from independent advisers to their state representatives, while our staff met with lawmakers in person to help them understand the impact these proposals would have on their own constituents. In both cases, the final versions of the bills excluded these new taxes on financial advice.

With state governments facing ongoing financial challenges, however, the pressure to implement new taxes isn't going away anytime soon. In fact, over the years we have seen proposals similar to the ones that threatened investors in Minnesota and Ohio crop up in other states across the country, often using the same language and the same tax mechanisms.

In many of these cases, state legislators believe that such proposals would only impact “Wall Street” — large, faraway financial institutions that they view as easy targets. Helping these lawmakers understand the real-world impacts of such legislation and the new burdens it creates for their own voters will require a long-term and sustained effort on the part of our industry.

I urge independent financial advisers to stay in close contact with industry associations that can help them make sense of new state legislation that could affect their clients and businesses, and to look for every opportunity to reach out to their state representatives to stand up for their clients' interests.

As advisers work to help investors overcome the obstacles between them and their retirement dreams, they should also work with state lawmakers to prevent new roadblocks — however well-intentioned — from emerging, as well.

Dale E. Brown is the founding president and chief executive of the Financial Services Institute.


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