04.06.16

401-Pay

The Obama Administration’s New Retirement Plan Regulations Will Cost Workers, Retirees

Obama Plan ‘Could More Than Double The Cost Of Investment Advice For Many Savers’ Or Push Investors ‘To Settle For Computer Generated Robo-Advice’

“President Obama’s plan to reform retirement savings could more than double the cost of investment advice for many savers. … A recent study by Cerulli Associates found that while the current commission model costs on average 0.5% of assets, the fee-based model would cost 1.1% of assets plus additional fund expenses.” (“Democrats Against Obamasave,” Wall Street Journal, 10/11/15)

  • “An estimated 45% of Americans have accounts with less than $25,000, according to the Employee Benefit Research Institute, which is the minimum required balance Primerica could find for a fee-based broker. Without the commission model, these investors would need to settle for computer generated robo-advice.” (“Democrats Against Obamasave,” Wall Street Journal, 10/11/15)

SENATE HOMELAND SECURITY & GOVERNMENTAL AFFAIRS COMMITTEE REPORT: “A 2015 report estimates that the rule will cause a loss of retirement savings of $68–80 billion per year, and will ‘jeopardize retirement readiness for 11.9 million IRA and retirement participants.’ Robert Litan, an economist and attorney who served as the associate director of the White House budget office in the Clinton Administration, predicts that seven million or more small investors could lose their brokers as a result of the rule. This would be costly to investors, who may make worse investing decisions when they do not receive human investment advice.” (“The Labor Department’s Fiduciary Rule: How A Flawed Process Could Hurt Retirement Savers,” Committee On Homeland Security And Governmental Affairs, 2/24/16)

CEI: “For illustration, we can look to what happened in the United Kingdom after it banned third-party commissions in 2013. A June 2013 study by the Cass Business School at City University London found that brokers had largely stopped serving British savers with portfolios below £150,000 ($240,000), because the fees alone would not pay for servicing the accounts. This study and other research estimates that this ‘guidance gap’ will see 85 percent of British savers lose their brokers or get reduced services for their retirement accounts. … similar effects will take place here…” (The Department of Labor’s Fiduciary Rule for Dummies,” Competitive Enterprise Institute, 3/2/16)

‘Expecting Robots To Safeguard The Retirement Security Of Small Savers Is … Hubris’

DAN GALLAGHER, SEC Commissioner: ‘Less well-heeled customers will be … jettisoned to robo-advisers’ “I feel compelled to weigh in on the Fiduciary Proposal because I am convinced that the rule, when finalized, will harm investors and the U.S. capital markets … Less well-heeled customers will be ‘fired’ by their brokers or jettisoned to robo-advisers.” (SEC Commissioner Dan Gallagher, Letter To Sec. Perez, 7/21/15)

“Secretary of Labor Thomas Perez insists that small savers would be better off working with ‘robo advisers’—computer-programmed advice delivered by email or text message—than with human brokers who get paid commissions by investment firms, because this renders their human advice ‘conflicted.’ The Labor Department has proposed rules to effectively ban this form of compensation.” (“Obama’s Big Idea For Small Savers: ‘Robo’ Financial Advice,” The Wall Street Journal, 7/21/15)

DOL: ‘Individual Retirement …  Seldom Have The Training Or Specialized Expertise Necessary To Prudently Manage Retirement Assets On Their Own,’ But Rather Than Personalized Investment Advice, They Should Rely On ‘Technology-Based Tools’ Created By ‘A Startup’ A Few Years Ago

DEPT. OF LABOR PROPOSED RULE: “Today, individual retirement investors have much greater responsibility for directing their own investments, but they seldom have the training or specialized expertise necessary to prudently manage retirement assets on their own. As a result, they often depend on investment advice for guidance on how to manage their savings to achieve a secure retirement.” (Federal Register, Volume.80, No.75, P.21930, 4/20/15)

THOMAS PEREZ, Sec. of Labor: “Successful firms like Wealthfront, the Garrett Planning Network, Financial Engines and Personal Capital are there to occupy this important market niche. … I believe our rulemaking can serve as catalyst for innovation in the industry, as more firms devise new tools and strategies assisted by modern software and other technology-based tools to accommodate even those with only a few thousand dollars to invest.” (Sec. Perez, Remarks, Brookings Institution, 10/16/15)

  • PEREZ: “Well, one thing that has been really helpful, and I've certainly learned a lot about this industry over the course of the last two years, is that technology is a huge ally. … And I mentioned in my opening remarks a company out of California Wealthfront. They're a startup. They're four years in.” (U.S. House Of Representatives, Committee On Education And The Workforce, Hearing, 6/17/15)

SEC: ‘Investors Should Be Wary’ Of ‘Automated Investment Tools’

SEC Investor Alert: ‘It is important to understand their risks and limitations before using … automated investment tools’ “At the swipe of a fingertip on a mobile device or the click of a mouse on a desktop computer, investors can access a broad range of automated investment tools. … While automated investment tools may offer clear benefits—including low cost, ease of use, and broad access—it is important to understand their risks and limitations before using them.  Investors should be wary of tools that promise better portfolio performance.” (“Investor Alert: Automated Investment Tools,” Securities And Exchange Commission, 5/8/15)

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SENATE REPUBLICAN COMMUNICATIONS CENTER

Related Issues: Regulations, Middle Class