Isakson Fights Obama on Department of Labor’s Fiduciary Rule

President Obama will soon use his veto pen for just the tenth time since he’s been in office. On Tuesday, the U.S. Senate passed a resolution of disapproval of the so-called fiduciary rule, a U.S. Department of Labor regulation that requires financial advisors give retirement advice that is in their client’s best interest and is not based on the commission that the advisor will receive.

Georgia Senator Johnny Isakson, the resolution’s sponsor, issued the following statement:

“Today’s vote is a message from hardworking Americans and small businesses that they don’t want this administration further limiting their choices or using red tape to make their lives more expensive.”

Senator Lamar Alexander (R-TN), the chairman of the Senate Committee on Health, Education, Labor, and Pensions, chimed in as well:

“Under this Labor Department’s so-called ‘fiduciary’ rule, retirement planning will be available only to the rich, since many financial advisors won’t be able to risk this new legal liability except for clients with big accounts.”

President Obama has a different opinion, saying that the rule gives consumers much needed protection from shady and self-interested financial advisors:

“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns.  So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you.

There is some evidence for Obama’s position. A 2011 study by researchers at Harvard and MIT found that “[a financial advisor’s] self‐interest plays a role in generating the low‐quality advice.” However, opponents of the rule, including the Financial Services Roundtable, the financial service industry’s advocacy group, argue that the increased regulatory burden will restrict the services that financial advisors can offer. They claim that low income Americans will be hit the hardest as their meager retirement savings will not be worth the risk for financial advisory firms to take them on as clients.

The resolution drew some support from Blue Dog Democrats. Senators Joe Donnelly (D-IN), Heidi Heitkamp (D-ND), and Jon Tester (D-MT) voted with 53 Republicans to strike down the fiduciary rule. Only a simple majority of senators was required since resolutions of disapproval cannot be filibustered under the Congressional Review Act, a 1996 law that gives Congress 60 days to overrule a regulation promulgated by the president. The resolution passed the House last week on strict party lines. Neither chamber secured a two-thirds majority, which will be required to override President Obama’s expected veto.

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ScottNAtlantaBenevolusAndrew C. PopeSaltycrackerDave Bearse Recent comment authors
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NoParty4Me
NoParty4Me

Why not require full disclosure of kickbacks and commissions of advisors? Let the consumer decide if the extra fees are justified. I’m a bit suspicious of the “will restrict the services that financial advisors can offer” reason simply because an advisor can’t hide their conflicts of interest.

Most people with annutiy funds already get a statement that requires the funds to post their fees so consumers can see how much is deducted over average earnings. The advisors/fund managers should also post fees

gcp
gcp

Additional financial advisor regulation is unnecessary. It should be the investors responsibility to research an advisor. There is also much free info available whereby an investor can structure his or her own portfolio without paying an advisor.

Saltycracker
Saltycracker

Regulation is about government control we must be leery of. The challenge for most responsible savers is the government lure of 401ks. We are taking a risk for our future by investing the annual pre-tax limit. Sometimes about 100% of many folks savings. The government with their financially irresponsible public employee defined programs might want to tap that money one day even more than full income taxes on withdrawal. 401ks set by employers and their choice of managers/funds are eat up with fees. We can go to all the seminars we want and Most will take the step of faith… Read more »

gcp
gcp

Partially agree because employer chooses the 401k provider although often there are choices within the plan. It is then up to the employee to select the best plan. This choice often requires diligence and research by the employee but most of this info is available for free.

Additionally, Roth and regular IRA are available independent of ones employer. Investors can also invest outside of 401/IRA. Once again its up to the investor to do his homework because the info is available.

NoParty4Me
NoParty4Me

I think the point is for advisors to maintain fiduciary responsibility for their investors’ money with full disclosure about their fees and earnings from funds they push on consumers. Something that is implied, but obviously not required. Nor are any conflicts of interest or commissions required to be disclosed. It is currently hard to research such conflicts of interest when they are totally hidden.

gcp
gcp

It’s incumbent on the investor to investigate any product recommended by an advisor and the advisor himself.
Free info is readily available online on any fund and advisors can be checked at several sites such as http://www.finra.org

Benevolus
Benevolus

Rules like this aren’t made for the savvy investor who knows how and what to research to make an informed decision. It’s for the people whose father has died perhaps and left them something that they are not prepared to handle.

gcp
gcp

You don’t need to be a “savvy investor.” You just have to have a little common sense and you can’t get greedy.

Madoff is an extreme example. Many of his investors were prominent, “savvy” individuals yet they gave him money because Madoff showed consistent, high returns but no one looked at the underlying investments. Even the SEC either through incompetence or corruption missed the whole thing.

ScottNAtlanta
ScottNAtlanta

Ok…so investor #1 is told by his financial advisor that this fund Q will be great for him. So investor #1 is supposed to (on his own) find out that fund Q pays his financial advisor a kickback (when its not disclosed thus impossible to find out), and also figure out that the fund is heavily invested in the derivative market which even the most savvy investor cant really know whats sliced and diced? Sorry, not only does that dog not hunt…he turned back atcha and growled.

gcp
gcp

Why is investor #1 using a financial advisor when good, free info is so easily available?

Benevolus
Benevolus

If everyone could be just like gcp then there would be no problem.

gcp
gcp

If everyone used a little common sense there would be far fewer problems. I recommend folks invest on their own through one of the many low cost providers. If you choose to use an advisor you should first check them thoroughly which “investor #1” failed to do. But if you can’t or won’t do either of the above then put your money in a bank cd.

Saltycracker
Saltycracker

Rationally correct. But even with all the options today, most have little savings, lots of material stuff, which is their choice. The bite is they and the elected expect you to sustain them once in need through their bad lifestyles and choices. And the public workers expect pay, pensions and benefits above average for 20-30 years work, without having to save so much.

Jack Fitz
Jack Fitz

The “fiduciary rule” is is the definition of common sense legislation. Are republicans against the fiduciary rule as it applies to corporate board memberships as well? I mean, give me a break. How someone could be opposed to this rule is really the cause for pause. With the advent of low-cost mutual and index funds, every small town “money manager” that’s been living high on the hog for years should’ve been brought down to Earth. This rule only reinforces that. There are an enormous amount of quality products available to all Americans, regardless of personal wealth, to further their retirement… Read more »

Dave Bearse
Dave Bearse

The GOP’s 2012 election autopsy was so successful they’re moving on to take into account 2016’s populism.

Andrew C. Pope
Andrew C. Pope

The GOP’s argument is based on their belief that 99% of people won’t know what the fiduciary rule entails. They’re over exaggerating the “risk” to financial advisors. This rule will not allow you to sue your financial advisor for an investment that doesn’t turn out the way you want it. So long as his investment advice was reasonable and prudent, he’ll be fine. Saying that only the rich will have access to financial advisors under estimates the free market. If crappy big box investment firms pull out of the lower/middle income market because of the fiduciary rule, enterprising investment advisors… Read more »

Saltycracker
Saltycracker

You gotta love the huge pension funds for public workers, like GA Teachers – that pay millions to committee members to determine what investment/fund managers can charge millions more to invest employee savings in select financial offerings run by someone. All this and the bad long range business plan ends up with increased risk taking. You’d think one of these middle men and related costs could be reduced.

Or put all public workers on 401ks they have more say in with less skimming fees. Just kidding, public workers prefer a taxpayer guaranteed program.

gcp
gcp

Ga Teacher Retirement System has many of its employees/administrators making over 100,000 and several over 500,000 yet their results are just average. The state could save money by outsourcing to Vanguard or another low cost provider.

http://www.open.georgia.gov/sta/search.aud

Saltycracker
Saltycracker

Yep – their admins for the retirement fund are in the $350k and up salary league. A few years ago the state couldn’t even pay the unused vacation and sick pay money for some to retire early. The power of that big fund should result in fees well less than 0.2 basis points , some less, some more depending on risk, but I’d bet the teachers will not see it. But they don’t care, the pension is fixed regardless of any underperformance or funding tax increases.

Saltycracker
Saltycracker

Oh yeah, and when the school or other has to set aside more for the pension funds in their budget they can either raise taxes or cut services or use acturian Magic.

Best to threaten to cut services so we go for the tax or Gambling money, or LOST”s or fees or……

Benevolus
Benevolus

I don’t mind the idea of it, but how do you enforce something like this? I would think one would have to be pretty egregious for anyone to make a case.

Financial advisers are professionals like doctors or lawyers or pilots. Yes we should expect trustworthy advice from them because the knowledge they offer is more specialized and technical than most people can reasonably expect to understand on their own.