White House Looking At Whether Brokers Are Costing Workers Billions in Retirement Funds

Bloomberg News is reporting that according to a memo drafted by President Obama’s Council of Economic Advisers Chair Jason Furman, the White House may be pushing for tighter oversight over brokers who deal with retirement accounts. Furman noted that research shows that excessive trading, increased commissions, and other broker practices may be costing investors up to $17 billion a year-and that even this estimate may be conservative. His memo said that investors might be losing up to 10% of their long-term savings because they receive conflicted investment advice.

This could lead to a Labor Department regulation that would establish a fiduciary obligation requiring these brokers to act in the best interests of their clients. Right now, brokers are merely obligated to make sure that they reasonably believe they are making the right recommendation to a client.

Such a fiduciary duty rule is one that Bank of America Corp (BAC), Morgan Stanley (MS), and other firms have lobbied against. They contend that this type of regulation would not only be more expensive but also it would leave smaller investors with fewer investment choices.

Brokers typically charge commissions, which are determined by trading fees. The financial industry has said that if there were a fiduciary standard it would be hard to maintain accounts that are commission-based. Investors would have to go into accounts with a flat fee charge while savers with less than $50,000 in assets might have to be dropped.

Furman however, has said that any DOL proposal of a draft rule wouldn’t ban commission sales. Instead, it would find a “middle ground.”

The current Labor Department rules related to broker obligations were instituted in 1975, when employers primarily controlled workers’ pensions and there were no 401(K)s. Now, millions of Americans have individual retirement accounts and 401(K)s.

Making sure that your retirement funds are invested safely and properly is important regardless of when you start saving. According to new research from the Center for American Progress, over half of all U.S. households don’t have enough retirement funds. One reason for this is that a lot of people aren’t able to access private-sector retirement plans.

If you are working with a broker who is handling your retirement money, it is important that your money and investments are being dealt with in a manner benefitting you rather than the financial representative or the firm. Unfortunately, there are investors who sustain huge losses because of broker fraud. Some of these investors are seniors who have lost their retirement and no longer have other sources of income.

At Shepherd Smith Edwards and Kantas, LTD LLP we help investors recoup their stockbroker fraud losses.

Billions in Lost 401(k) Savings, Abusive Brokers Under White House Scrutiny, Bloomberg, January 22, 2015

Retirement crisis is real and getting worse: Study, Investment News, January 27, 2015

Council of Economic Advisors, The White House

Center for American Progress

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