GWEN IFILL: But, first, a battle is brewing over proposed rules about the advice that financial advisers can give their customers.
The fight is one of several big dividing lines this week on Capitol Hill, and it’s spilled into the spending standoff as well. The deadline to pass a new spending bill is tomorrow.
William Brangham has been speaking with several of the key players as we get closer to the deadline, and he joins me now.
So, this has finally percolated its way to Congress, but what is at the root of this dispute, William?
WILLIAM BRANGHAM: The root of this dispute is that the Department of Labor wants to change the rules governing retirement advisers.
And these are people you go to if you need help with your 401(k) or rolling over your IRA, things like that. And the Department of Labor wants to change it so that all these advisers have to have what is called the best interests of their client at heart.
Now, many of us might think, well, doesn’t my adviser already have my best interest at heart? And most of them do, but not all of them, and not all of them are legally required to do so.
So, that can sometimes mean that you might get sold a plan that has a lot of higher fees that is maybe not the best plan for your retirement future. And so the Department of Labor wants to say, OK, put your clients’ interests ahead of you, ahead of your own across the board.
And, yesterday, I talked to the labor secretary, Thomas Perez, and here’s what he had to say about this.
THOMAS PEREZ, Secretary of Labor: This is not a case of people with malice in their heart who are trying to screw people. This is a case about a system that’s structurally flawed.
The incentives are misaligned. Under the current standard, which is a so-called suitability standard, I can have four or five different products that are so-called suitable for you. And what happens? Well, the product that generates the most commission for the salesperson is the product that invariably gets sold.
And so the consumer loses, and the salesperson wins.
GWEN IFILL: So, William, the consumer loses and the salesperson wins, as Secretary Perez says. How much money are we talking about here?
WILLIAM BRANGHAM: The White House estimates that $17 billion is lost every single year by advisers who are getting what they call this conflicted advice, where you’re sold something where the fees are higher than they should be or that is just not the optimal plan for you.
And the complicated issue here is that there is a dizzying array of retirement options out there. And it’s very difficult for people to know where to turn, so naturally they seek advice.
One of the advocates that I spoke with likened this to when you’re driving down the road in your car, and, all of a sudden, you hear a big bang coming out of your engine. You take it to one mechanic and he says, that’s $1,500 because you have got to replace your transmission.
Take it to another mechanic, he says, oh, it’s $1.99 for a spark plug.
Unless you’re an auto mechanic, you just don’t know, well, who’s right and who’s wrong. And some of the advocates argue that financial advice is the same way.
Dennis Kelleher, the CEO of an advocacy group called Better Markets, put this way.
DENNIS KELLEHER, President, Better Markets: So, it’s perfectly reasonable to get advice for such complex matters. The problem is that it’s not transparent.
You — the person doesn’t know, what are the 20 or 30 different types of products available? What are the fees? How do they perform over time? And am I getting a high-cost product that’s going to perform poorly or a low-cost product that will perform better? And you are never going to know because you never see the alternative.
GWEN IFILL: The industry obviously is not taking this lying down. They are going to continue to fight this, and they’re spending a lot of money on it.
WILLIAM BRANGHAM: The industry has spent already millions of dollars trying to torpedo these rules.
They put a rider in the current omnibus spending bill that is going to try to eliminate the ability of the Department of Labor to introduce this, and they are arguing that these rules are unnecessary, that they’re going to overly burden the industry, people will not get the advice that they need, and that this is just an unnecessary set of rules.
GWEN IFILL: You talked to Kevin Mayeux, the National Association of Insurance and Financial Advisers spokesmen. Let’s hear what he said.
KEVIN MAYEUX, National Association of Insurance and Financial Advisers: Financial advisers that are successful are constantly acting in the best interests of their clients, because, if they weren’t, they wouldn’t be in business anymore.
There is already ample opportunity to discipline bad actors. And the cost of the complying with a complex federal regulation that is 1,000 pages in length is just going to make it prohibitive for companies to put their advisers on the street to help clients and for advisers to be able to access clients to give them an array of options from which they can choose.
GWEN IFILL: When the industry talks about the cost of compliance, how burdensome are they saying these regulations would be?
WILLIAM BRANGHAM: They say that they are very burdensome. They say this is 1,000 pages of regulations, and maybe big firms can handle the compliance costs of that, but smaller advisers can’t, and that some of those advisers might look at this and say, I’m getting out of this business.
GWEN IFILL: So, what do you if you’re something who is just depending on your financial adviser to handle your nest egg? What do you do now?
WILLIAM BRANGHAM: Well, if you really want to know whether or not they’re looking out for you, you can ask.
It’s an awkward conversation, but you can literally say to your adviser, do you have the legal obligation to look out for my best interests? Now, if they say, I don’t have the legal obligation, it doesn’t mean they are going to try swindle you necessarily.
But if they say they do have that obligation, then chances are you can be more comfortable with that. But if you already have a plan, and you’re wondering, was this a good plan, did I get sold a bill of goods, you can take it to someone like a certified financial planner or a registered financial adviser, people who do have that legal obligation, and say, review this for me. Tell me, is this a good plan for me or not?
GWEN IFILL: William Brangham, thank you very much.
WILLIAM BRANGHAM: Thank you.