{"id":10275,"date":"2023-11-06T16:48:47","date_gmt":"2023-11-06T16:48:47","guid":{"rendered":"https:\/\/infundpros.com\/finance\/opinion-financial-advisers-still-have-too-many-ways-to-snag-gullible-investors\/"},"modified":"2023-11-06T16:48:47","modified_gmt":"2023-11-06T16:48:47","slug":"opinion-financial-advisers-still-have-too-many-ways-to-snag-gullible-investors","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=10275","title":{"rendered":"Opinion: Financial advisers still have too many ways to snag gullible investors"},"content":{"rendered":"

The U.S. Department of Labor\u2019s first attempt in years to revise rules guiding financial advice \u2014 released on Oct. 31 \u2014 pussyfoots around real problems, offering mild help but little comfort for consumers who need financial guidance now more than ever.<\/p>\n

This fight over a fiduciary standard for financial advice \u2014 requiring all advisers to put a customer\u2019s best interests first \u2014 has been going on for close to 50 years now, largely because spineless legislators and mealy-mouthed financial services companies don\u2019t want to give up old ways stemming from times when the public didn\u2019t know enough about its finances to manage them actively. In all that time, progress has been slow and legislative advances mostly ineffective.<\/p>\n

\n

This latest Labor Department announcement was more of the same.<\/p>\n

A fiduciary is a person (or organization) who puts their clients\u2019 interests ahead of their own; they have a duty to preserve good faith and trust.<\/p>\n

That\u2019s exactly what most people thought they were getting with a financial adviser, insurance agent or broker, but the reality is that different standards have long applied to various types of adviser.<\/p>\n

Rather than holding everyone in the financial services world to a fiduciary standard, many advisers had only a \u201csuitability standard,\u201d requiring them to sell products deemed \u201csuitable\u201d for the client. Agents who sold products on commission could legally steer clients towards items that paid more, even if it provided a lesser outcome for the consumer, provided the product was \u201csuitable\u201d for the client.<\/p>\n

The Department of Labor has been working on the issue through multiple presidential administrations. In 2016, under the Obama administration, the department finalized a rule that should have helped \u2014 though it was limited in scope too \u2014 but which was subsequently struck down in federal court.<\/p>\n

In 2020, the Labor Department issued Proposal 3.0, which reinstated the investment advice definition of a fiduciary that had been in effect since 1975, and added some new definitions. Proposal 4.0 was the update made on Oct. 31.<\/p>\n

The proposal, formally called the \u201cRetirement Security Rule: Definition of an Investment Advice Fiduciary,\u201d does close a few loopholes. Specifically, any advice given around withdrawing assets from a 401(k) or other employer-sponsored plan now must adhere to a fiduciary standard, and firms working with employers to pick investments made available in those plans must now make recommendations that are in the client\u2019s best interest.<\/p>\n

The Securities and Exchange Commission, rather than the Department of Labor, has a best-interest rule in place over advice to purchase securities, but that fiduciary standard (and the SEC\u2019s authority) did not extend to commodities or to insurance products such as indexed annuities. The proposed rule removes the product loopholes, requiring retirement advisers to provide advice in the saver\u2019s best interest no matter the investment idea they\u2019re selling.<\/p>\n

Proposal 4.0 is part of the Biden administration\u2019s push to get rid of junk fees impacting consumers. In making the announcement, the White House said that mandating fiduciary recommendations \u2014 thereby eliminating excessive costs, fees and conflicted dealings \u2014 could increase retirement savers\u2019 returns by between 0.2% and 1.2% per year, which over an expected lifetime of investing could boost retirement savings by as much as 20%.<\/p>\n

<\/p>\n

<\/p>\n

\n

\n \u201c<\/span>The current system has never gone far enough to protect consumers.\u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n

It shouldn\u2019t be hard to create and follow a standard of care, caution and best interests, but there\u2019s a reason why this has dragged on for decades, and no guarantee the latest proposal gets through.<\/p>\n

Many industry groups representing retirement plan sponsors and financial professionals \u2014 the Insured Retirement Institute, for example \u2014 are adamantly against it (and have a vested interest in taking that stand). Other powerful industry groups \u2014 for example, the Investment Company Institute, the trade association for the mutual fund industry \u2014 made statements saying they\u2019re on the fence while analyzing the proposal; however, they seem mostly satisfied with current regulations.<\/p>\n

The current system has never gone far enough to protect consumers, and the revised rules, if passed as proposed, don\u2019t make things much better. Too much wiggle room for bad actors is left by not including an across-the-board mandate to put customers\u2019 interests first.<\/p>\n

Having more fiduciaries is good, but having everyone be a fiduciary would be better. George Kinder, founder of the Kinder Institute of Life Planning and a long-time thought leader in the world of financial advice, has a stunningly simple idea that would revolutionize not just the financial services business but all public and private entities.<\/p>\n

It\u2019s called \u201cfiduciary in all things,\u201d or FIAT for short.<\/p>\n

Simply put, Kinder believes that \u201ca fiduciary standard of obligation is required for all institutions \u2014 corporate, non-profit and governmental \u2014 to place the interests of all stakeholders, of truth, of humanity, democracy, and the living planet that sustains us, first above their own self-interest.\u201d<\/p>\n

In a recent interview, Kinder spoke of launching a movement to get people from all walks of life to look past the things that polarize us, and to create a fiduciary standard approach to essentially all things.<\/p>\n

Consumers, no matter what they disagree on personally and politically, are aligned on personal services. They want their interests served and don\u2019t want to be taken advantage of.<\/p>\n

The financial services companies won\u2019t like any of this, but they will choke it down, because the fact is that living up to fiduciary standards is a profitable business model.<\/p>\n

It\u2019s long past time that this issue got resolved around money advice. Rather than permitting rules written decades ago to protect financial-services interests, it\u2019s time for U.S. leaders to come up with new rules to put consumers first.<\/p>\n

More:<\/strong> \u2018I\u2019m feeling the pain with you.\u2019 What financial advisers do to keep you from panicking about stocks.<\/p>\n

Also read: <\/strong>Financial advisers make rich people richer. But is that all there is?<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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