SIFMA Says White House Isn’t Entirely Right About The Cost of Abusive Trading to Investors

The Securities Industry and Financial Markets Association claims that the White House is employing a methodology that is flawed to make the claim that investors are losing around $17 billion in retirement funds yearly because of trading practices that are abusive. SIFMA is against imposing tougher rules against brokers, including a draft rule expected to be released by the U.S. Department of Labor mandating that those who offer retirement plan advice meet a fiduciary standard and place their clients’ best interests before their own. Right now, brokers must only satisfy a suitability standard of care with the requirement that they make appropriate recommendations even if they aren’t necessarily the best.

President Obama wants the Labor Department to go ahead with the rule proposal. In February, the White House put out a report finding that some brokers use excessive trading and costly investments to enhance their commission, as well as take part in other practices that end up costing investors big time.

SIFMA, however, in its new report, claims that the White House is disregarding how similar rule changes such as the one the DOL is expected to propose, impacted investors in the United Kingdom where approximately 310,000 lost their brokers during the first quarter of 2014 alone because their accounts were too small for the representative to handle. Another 60,000 investors were rejected by brokers for their low balances. However, while the U.K.’s rule prohibits brokers from getting paid commissions from mutual funds, the DOL doesn’t plan to institute such a ban.

The SIFMA report, by NERA Economic Consulting, claims that the White House doesn’t appreciate the intangible benefits clients get from brokers or the fact that mutual fund fees have gone down over the past 15 years. Also, the report notes that aggregate number used by the White House factors in the whole $600 billion annuities market for individual retirement account annuities without anyone explaining why all of that is included. SIFMA chief executive and president Kenneth Bentsen Jr. said that the White House was employing data that was “nonconclusive” to arrive at conclusions that were “questionable.”

Earlier this month, Securities and Exchange Commission (SEC) chairwoman Mary Jo White gave testimony in front of the House Financial Services Committee. She said that the regulator is moving forward with its fiduciary standards drafts that would mandate for tougher disclosure requirements.

When Republican lawmakers said that she should do a better job of coordinating with the DOL when it comes to crafting financial adviser regulations, she noted that the SEC and the Labor Department are distinct agencies, each responsible for its own rules. Republicans and the business community, however are worried that having two different rules from the respective agencies would lead to market confusion while low-income Americans will find that the financial advisory industry is no longer accessible to them.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm.

SIFMA claims White House figures on DOL rule flawed, InvestmentNews, March 16, 2015

Republicans grill SEC chief over financial adviser regs, The Hill, March 24, 2015


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