SIFMA claims White House figures on DOL rule flawed

The White House is using flawed methodology to assert that abusive trading practices are costing U.S. investors up to $17 billion a year in retirement savings, according to a report released Monday by a Wall Street group that opposes toughening rules on brokers.
The 18-page report commissioned by the Securities Industry and Financial Markets Association said the estimate that President Barack Obama’s administration is using is “simplistic” and isn’t supported by academic literature.
Additionally, the aggregated number the White House uses includes the entire $600 billion market for annuities in individual retirement accounts, without anyone saying why these assets should be included, according to the report, which was completed by NERA Economic Consulting.
The White House is using “inconclusive data that draws questionable conclusions” to support a need for tighter oversight of brokers who handle retirement accounts, said Kenneth Bentsen, Jr., president and chief executive of SIFMA.
“It’s important to lay out all the facts,” he said on a call with reporters.


The securities industry is expecting the Department of Labor to release a draft rule proposal by early summer that will require brokers offering retirement plan advice to uphold a fiduciary standard and put their clients’ interests ahead of their own. Currently, brokers only have to meet a suitability standard of care that requires recommendations be appropriate, but not necessarily the best ones, for the consumer.
In a report released last month, the White House concluded that some brokers boost commissions with excessive trading and expensive investments, and engage in other practices that cost Americans $8 billion to $17 billion a year.
President Obama has directed the DOL to move forward with a rule proposal.
A previous attempt to pass such a rule was pulled back in 2011 after it was strenuously fought by the brokerage industry, including firms like Morgan Stanley and Bank of America Corp. Brokers claim the switch would cost them too much to be able to serve smaller investors, who would lose access to advice.
Securities and Exchange Commission Chairwoman Mary Jo White, who has said she’ll push her own agency to decide this year whether to raise standards for all retail investment advice, is set to speak Tuesday at a SIFMA compliance conference in Phoenix. Ms. White has promised since November to make her position on fiduciary duty known in the “short term.”
The new report from SIFMA contends the White House is ignoring the impact that similar rule changes in the United Kingdom have had on investors there, namely that about 310,000 clients stopped being served by their brokers during the first three months of 2014 because their accounts were too small for the adviser to handle profitably.
About 60,000 more investors were turned away from brokers because their balances were too low, the SIFMA report said, citing studies by Europe Economics that analyze the impact of the U.K.’s rule that bans commissions to brokers from mutual funds.
“The DOL has said over and over again that they are not going to ban commissions, so why would anyone look at experience that’s not relevant to what we’re doing,” said Barbara Roper, director of investor protection at the Consumer Federation of America.
She added that putting an exact number on the harm to investors “is a fool’s game,” especially since the industry controls access to the data that a real analysis would require.
“Reasonable people may disagree over the exact dollar amount of harm, but what’s incontrovertible is that brokers are free under existing standards to market themselves as objective advisers while recommending products that put their own interests above clients,” Ms. Roper said. “There’s a cost to that.”
The White House and DOL did not immediately respond to requests for comment.
The SIFMA report also said the White House fails to value the intangible benefits clients receive from brokers, such as encouraging them to increase savings, according to the SIFMA report, and doesn’t take into consideration that mutual fund fees have dropped since 2000.

Source: NERA report March 16, 2015, citing Investment Company Institute data

“It is notable that this has occurred independently of any explicit government driven interventions,” the report said.
On Friday, DOL Secretary Thomas Perez said he’s confident his agency will be able to complete work on the fiduciary rule strengthening investment advice for retirement accounts before President Obama leaves office.
SIFMA Chair William A. Johnstone on what’s next for the fiduciary standard.

Related Topics: DOL fiduciary rule