DOL Secretary Perez touts Wealthfront as paragon of low-cost, fiduciary advice

Holds up online-advice provider as exemplar of low-cost, fiduciary advice

Jun 19, 2015 @ 1:24 pm

By Mark Schoeff Jr.

+ Zoom

In his effort to build support for a proposal to raise investment advice standards for retirement accounts, Department of Labor Secretary Thomas Perez often uses a prominent robo-adviser as a talking point.

When he appeared at a June 17 congressional hearing, Mr. Perez mentioned Wealthfront, an online investment adviser, at least three times. A day later, he tweeted a photo of himself and Wealthfront Chief Executive Adam Nash at the Wealthfront office.

Mr. Perez uses Wealthfront as an example of a company that acts in the best interests of its clients while providing low-cost advice to investors with modest assets. The argument helps sell the proposed rule, which is designed to reduce conflicts of interest for brokers working with 401(k) and individual retirement accounts.

At the hearing, Mr. Perez used Wealthfront to counter attacks from opponents of the rule, who said it will significantly increase liability risk and regulatory costs for brokers and force them to abandon accounts for middle-income savers.

Demonstrating fluency in Wealthfront's statistics (more than $2 billion in assets under management) as well as its business model (not charging fees to investors with less than $10,000 in their accounts, and low fees to larger investors), Mr. Perez touted the company's approach to lawmakers.

“They have a platform that enables them to lower their fees, operate as a fiduciary and do well by doing good,” Mr. Perez said.

Mr. Perez touted online investment advice as a way to serve people with small accounts in rural America and elsewhere.

“Technology is a huge ally,” Mr. Perez said at the hearing. “Technology is, I think, a linchpin to the innovation that's enabling more people to get access to advice.”

But the Securities Industry and Financial Markets Association, the major financial services trade group, was uncomfortable with Mr. Perez's emphasis on electronic advice delivery.

“There were good questions raised about how lower-income individuals and small businesses will be served, yet we are concerned that the secretary continued to offer technology as a comparable alternative,” Lisa Bleier, SIFMA managing director and associate general counsel, said in a statement after the hearing.

An aide to Mr. Perez said that he is getting feedback on the proposal from a wide range of financial firms.

“We have also spoken with a number of traditional advisers who are already offering fiduciary-level services to their retirement customers and who plan to continue to do so as both the technology and regulations in this marketplace develop,” DOL spokesman Michael Trupo said in an e-mail. “The secretary met with the CEO of Wealthfront during a planned trip to California, and it is one of many meetings with industry stakeholders taking place throughout this process.”

Mr. Perez's message was embraced by Sheryl Garrett, founder of the Garrett Planning Network.

“It's fabulous,” Ms. Garrett said. “I think what Secretary Perez was trying to do, and did well, was bring up the point that technology is enabling new entrants into the marketplace to fill this need.”

Mr. Perez's boss, President Barack Obama, shined the spotlight on Ms. Garrett at an event at AARP in February where Mr. Obama gave a strong endorsement to the DOL rule.

Although she's a human adviser, Ms. Garrett is not threatened by the government's emphasis on robo-advice.

“They are democratizing the concept of professional investment advice and driving down the price,” Ms. Garrett said. “A combination of technology and human advisers will bring fiduciary advice to the masses most efficiently.”

In addition to Wealthfront, Mr. Perez mentioned Vanguard as a firm that offered low-cost advice, and praised its founder, John Bogle, as a fiduciary pioneer.

He said firms other than Wealthfront and Vanguard were using technology well, but he didn't mention them by name.

Wealthfront has a connection to the Obama administration beyond the DOL rule. Alison Rosenthal, a Wealthfront vice president, serves on Mr. Obama's global entrepreneurship council.

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