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.