Wednesday, March 27, 2013

Will DOL Fiduciary Rule Have Disparate Impact on African-American Savers?

Word in Washington is that the Department of Labor (DOL) will soon re-release its expanded fiduciary regulation.  The regulation will govern how financial advisors can provide advice to savers, including those who use IRAs.

Today InvestmentNews is out with coverage of a letter the Congressional Black Caucus (CBC) sent the DOL urging them to consider the rule's impact on the African American community.  The concern is that the rule may force advisors out of the small-saver market in favor of only working with those who have more assets.

An expert from the letter:
“We maintain concerns that if the re-proposal reflects the department's initial fiduciary proposal, it could disparately impact retirement savers and investment representatives in the African-American community,” states the letter, signed by Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, and fellow Democratic Reps. Gregory Meeks (N.Y.), Gwen Moore (Wis.), Emmanuel Cleaver (Mo.), Al Green (Texas), William Lacy Clay (Mo.), Terri Sewell (Ala.) and David Scott (Ga.).
It goes on to note that:
“If brokers who serve these accounts are subject to [the Employee Retirement Income Security Act's] strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations,” the lawmakers wrote. “If that occurs, it could cause IRA services to be unattainable by many retirement savers in the African-American community.”
Research by CFS and others demonstrates that contact with a financial professional can be the difference between a consumer taking advantage of a financial tool like life insurance or an IRA and not using the savings vehicle.   As such, the DOL should proceed with caution.  Many communities in America are underserved by financial professionals.  We should be working to get them more access to the tools necessary to achieve the American Dream, not less.

Tuesday, March 19, 2013

New EBRI Retirement Numbers

The Employee Benefit Research Institute is out with a new study of retirement savings.  The picture, as you might imagine, is bleak.  The Wall Street Journal has a write up.

Key point:
Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes, according to a report to be released Tuesday by the Employee Benefit Research Institute. Only 49% reported having so little money saved in 2008.
Lawmakers and regulators in Washington, DC, will be wrestling with a number of policy areas that involve retirement in the next year. The EBRI survey shows there is a crisis. Washington must help, not make it worse.

Monday, March 4, 2013

Boston Globe on Financial Literacy

The Boston Globe had an interesting article on financial literacy over the weekend.  The paper discusses a program at Harvard sponsored by the college's credit union.  While the fact that even Harvard students need lessons in money is interesting, the article goes into one of the vexing problems in the area of financial literacy research.  No one is yet sure what works.
Many researchers and industry groups are now trying to figure out which programs work best. The National Endowment for Financial Education suggests that students are most likely to retain information if it is covered comprehensively over time — not in one-time lessons. And adults are likely to learn more about ­finances in the workplace, working with advisers, or other alternatives to staid classroom lectures.
The last point is interesting.  How do we get to adults who are outside of school yet very much need to learn more about money?