Real Reason Brokers Oppose a Fiduciary Standard

PAULA DWYER

FEB 27, 2015

(Bloomberg) — Wall Street is wasting no time revving up its lobbying machine now that President Barack Obama has said his administration soon will propose a rule to require brokers to act as fiduciaries when advising clients on their retirement savings.

Asking brokers to put clients’ interests ahead of their own seems like a good idea, yet industry trade groups argue the rule will make investment advice and retirement planning too expensive for low- to middle-income families. If that happened, the argument goes, those families would save less for retirement and, down the road, could be a burden on taxpayers.

One industry group, the National Association of Plan Advisors, which represents professional retirement-plan advisers, goes so far as to call the proposal the “No Advice” rule.

This sounds alarming! Is Obama about to make worse the very problem — too little retirement savings — he says he wants to fix?

That’s the thrust of a memo written by the law firm Debevoise & Plimpton for the Financial Services Roundtable, which represents the chief executive officers of banks, insurers and asset managers. The main evidence comes from a 2011 study by consulting firm Oliver Wyman, which has come to represent the core of the industry’s argument.

That study says lower-income investors prefer to work with brokers (who don’t have a fiduciary duty and are paid through sales commissions, revenue-sharing deals and other fees) over registered investment advisers (who are paid directly out of a client’s pocket and already must put client interests ahead of their own).