Cetera president blasts White House memo defending DOL fiduciary

Arguments continue on both sides about the merits of the recently-leaked White House memo and what it means for the standard's future prospects.

An independent broker-dealer executive Monday sharply criticized a leaked White House memo that purports to show that sales incentives for financial advisers cost retirement savers billions of dollars annually, calling it “offensive” and saying that it demonstrated “ignorance” about the role of advisers.

The document “accuses all financial advisers of defrauding their clients,” Adam Antoniades, president of Cetera Financial Group, told a Financial Services Institute conference audience of about 800 in San Antonio. “The ignorance displayed in the memo is quite shocking to me. It’s frankly offensive.”

Last week, the draft memo surfaced in reports published by Bloomberg News and The Hill, a Capitol Hill newspaper. The National Association of Plan Advisors posted the document on its website.

The memo argues that “perverse incentives” for financial advisers cause them to encourage their clients to move from lower-cost employer retirement plans to higher-cost individual retirement accounts, to recommend high-priced products within IRAs and to trade IRA assets excessively.

The cost to investors is between $6 billion and $17 billion annually, according to the memo.

The White House memo gives the financial industry a taste of its own medicine, Barbara Roper, director of investor protection at the Consumer Federation of America, said in an interview. The sector has been demanding that regulators demonstrate the costs and benefits of the rules they propose. The administration document starkly illustrates a problem with investment advice for retirement savings.

“The industry is facing the ugly reality it created,” Ms. Roper said.

Ms. Roper dismissed Mr. Antoniades’ claim that the memo paints an inaccurate picture of retirement plan advice.

“The memo cites peer-reviewed academic research which shows what we’ve all known for years: Financial incentives influence broker-dealer conduct in ways that are harmful to investors,” Ms. Roper said. “These aren’t back-of-the-envelope calculations.”

The memo signals that the White House may be on the verge of weighing in forcefully in favor of a pending Department of Labor rule proposal that would expand the number of advisers to retirement plans that must act in the best interests of their clients, including those who sell IRAs.

Brokers currently meet a less stringent suitability standard that allows them to sell higher priced products as long as they fit a client’s investment needs.

“Assuming [the memo] is authentic, it suggests the White House has fully embraced the notion that there’s a serious problem in need of a solution and that DOL rulemaking is an essential component of that solution,” Ms. Roper said.

The DOL rule was first proposed in 2010 as a way to strengthen protections for workers and retirees from conflicted investment advice as they build their own retirement nest eggs. The agency withdrew after fierce industry criticism that it would increase regulatory and liability costs and force all retirement advice into a fee-based model, hurting small accounts.

The agency is expected to re-propose the rule this year. The FSI has vowed to continue its fight against it.

“This year, like every other, will be dominated by hand-to-hand combat,” said Mr. Antoniades, chairman of the FSI board.

The FSI, which has an $8.5 million budget devoted mostly to advocacy, has worked with other groups to build bipartisan opposition to the DOL fiduciary-duty rule in the House and Senate, according to FSI President and chief executive Dale Brown.

“We’re well positioned to impact the Department of Labor’s long awaited, by now looming, fiduciary rule,” Mr. Brown said at the conference.