Thursday, September 29, 2011

What is the "cost" of not using retirement advice?

A new study by Aon Hewitt and Financial Engines found that investors who relied on professional advice to manage their 401ks saw returns "almost 3% higher than those who did not."

This is an interesting study that comes just weeks after the Department of Labor withdrew its fiduciary rule. Many members of Congress, financial professionals and consumer advocates where concerned that this rule would force broker-dealers out of the IRA market and create a situation where small savers who invest below the thresholds for registered investment advisors had to "go it alone" in managing their IRAs. Read more here.

The Hewitt study is a reminder that access to financial professionals matters.

Tuesday, September 27, 2011

A Growing Movement for Financial Literacy in Maryland

Maryland State Comptroller Peter Franchot has been beating the drum for a high school financial literacy requirement in the state for a couple years now. Today he is taking his fight to the grassroots level and urging citizens to sign a petition urging the General Assembly to pass a bill when it reconvenes in 2012.

From the petition:

We, the undersigned, recognize that an education in the principles of personal finance - including the proper use of credit, the risks of excessive debt, the value of sound household budgeting and the importance of saving and investing for the future - is critical to a productive livelihood for Maryland's public school students. We believe that our nation's economic crisis - in which far too many Marylanders lost jobs, homes and life savings - strongly reinforced the need to provide our students with these essential tools of financial security. Finally, we believe that those who graduate from high school, and go on to higher education or enter the job market with an understanding of these principles, are at a significant advantage over those who do not.

CFS organized letters of support for financial litereacy legislation in previous sessions of the Maryland General Assembly.

If you live in Maryland, sign the petition here.

Wednesday, September 21, 2011

New Jersey Financial Literacy Law

The Courier Post Online covers the first few weeks of the 2011-2012 school year in New Jersey and how a new financial literacy education mandate is being implemented.

Here are some examples of what schools are doing:

West Deptford High School has offered personal finance classes as an elective for at least three years. This year’s freshman class will be the first required to fulfill 2.5 credits in financial, economic, business and entrepreneurial literacy in order to graduate. Washington Township High School has taken the further step of offering a full-year course, as opposed to a half-year class.

The Coalition for Financial Security did a significant amount of grassroots and grasstops organizing around the New Jersey law. It is good to see financial literacy going statewide.

Monday, September 19, 2011

Department of Labor Withdraws Rule, Will Repropose

Citing a desire to "protect consumers" and "avoid unjustified costs and burdens," the Department of Labor announced today that it will withdraw its current fiducuiary rule and re-propose a new rule early in 2012.

That is good news for small-savers. Now it will be important for the Department to protect small IRA holders in its plans going forward.

The DOL's press release hinted that it understands the IRA problem (excerpt below), but as always, the devil is in the details.

Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice.
Read more here.

Tuesday, September 13, 2011

The Financial Industry and Consumer Groups Agree

Today the House Financial Services committee held a hearing on the regulation of broker-dealers. While much of the conversation focused on SEC regulations, the DOL fiducuiary rule was also a topic of discussion.

Not suprisingly, the industry expressed their concerns. Perhaps more surpising were comments made by Barabara Roper of the Consumer Federation of America. Of course, this is not the first time she has spoken out. But her comments are worth noting again because they echo much of what the industry is saying.

Pasted below is an excerpt of her comments in response to an inquiry about the DOL rule. Note the concern about whether or not small savers will continue to have access to financial advice.

I think the Broker Dealers firms are absolutely right when they say if you apply an absolute ERISA, no conflict of interest, no third party compensation model, particularly in the Individual Retirement Account arena, and with the sanctions that exist in ERISA, the brokers dealers are going to exit that business.

Two-thousand dollar a year investors are not that enticing a market, and there are not a lot of fee-only financial planners or fee-only advisors that are going to step in to provide those services.

So yes, we have concerns about the DOL proposal. We are not under any stretch of the imagination advocating that it be adopted into the SEC world. Quite the contrary we would like to see something under the DOL proposal that more closely resembles the SEC.

That is primarily an issue with ERISA - rather than with the definition itself. One of the key issues is how will they do the prohibited transaction exemptions which seem to sort of have replaced ERISA as the way the law is imposed. And I don’t think you can move forward with the proposal until you know the details of what it would look like in practice.

More Concern Expressed Over DOL Fiduciary Rule

Dale Brown, president and CEO of the Financial Services Institute, has an Op-Ed in the Washington Times today.

Brown, like others before him, makes a strong case that the rule's unintended consequences will result in a regulation that does more harm than good.

For those like CFS concernced with access to financial security in middle- and low-income communities, Brown notes that:

This regulation particularly impacts accounts belonging to moderate-income savers. Direct costs for savers could increase anywhere from 75 percent to 195 percent once they are priced out of working with a financial adviser. The practical result is that many families would lose access to retirement information, education and services. It's time for the administration and Department of Labor to pay attention to this important issue - to pay attention to the consequences for millions of Americans just trying to save for their retirement, especially in this time of economicic uncertainty.

Tuesday, September 6, 2011


LIMRA is out with a new study this week looking at Gen-X and Gen-Y and their approach to life insurance. Perhaps suprising for a group that grew up with texting, the Internet and video games, face-to-face interaction with a financial expert is still a key difference between those who take advantage of life protection and those who do not.

From InvestmentNews:

Advisers can play a pivotal role in convincing this market that life insurance is a good idea. Indeed, one out of four of the surveyed consumers said that they began shopping for coverage because an adviser had suggested they needed it. What's more, 57% of the underinsured adults said that they were more likely to commit to coverage if they could confide in the adviser.

These numbers from LIMRA echo CFS's own work on working class and minority communities. They also cut to the heart of why CFS is working to make sure all communities have access to qualified financial advice. As the financial industry has focused more and more on wealthy clients, it is important that those who will serve the middle-market enter the profession.

Friday, September 2, 2011

Fiduciary Standard and Future Savers

The Hill's Congress Blog has a piece by the President of the Financial Services Roundtable that looks at the DOL's fiduciary standard and its impact on small savers.

Key graph:

[A recent study] went on to estimate that 360,000 fewer accounts would be opened in 2011 if the Rule had been in place. Assuming zero population growth and simple projections, after just 10 years, 3.6 million fewer Americans would have retirement savings accounts.

Yikes! At a time when Americans need MORE retirement savings, not less, it is important that DOL get this right.