What’s Best For The Customer Doesn’t Matter According To Finra CEO Ketchum

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Brokerdealer.com blog update profiles Finra CEO, Richard Ketchum has come back at the Department of Labor (DOL), as it proposed to raise invesment advice standards for broker dealers. Ketchum claims this could cause firms to discontinue sales of individual retirement accounts as it would force there be a bias against products with higher fees, regardless of what’s best for the customer. This brokerdealer.com blog update profiling the implications of this new DOL proposal is courtesy of InvestmentNews article, “Finra’s Ketchum criticizes DOL fiduciary rule“, with an excerpt below.

Finra’s CEO Richard Ketchum criticized a Department of Labor proposal to raise investment advice standards for brokers Wednesday, saying it might cause firms to curtail — or even discontinue — sales of individual retirement accounts.

Mr. Ketchum said the DOL proposal would create a bias against financial products with higher fees, even if they’re the best recommendation for a client, and that it could force firms to move to a fee-based rather than brokerage business model. He also said it’s not a good idea to regulate retirement products, such as 401(k)s and IRAs, differently than other investments.

The Securities and Exchange Commission should take the lead in drafting a fiduciary-duty rule “across all securities products,” Mr. Ketchum told reporters on the sidelines of the Financial Industry Regulatory Authority Inc’s annual conference in Washington. SEC Chairwoman Mary Jo White favors such a rule, but has acknowledged it’s not clear whether she has the support of the five-member panel to make a proposal.

To continue reading about Finra CEO Ketchum and his take on the DOL proposal and his opinion on the SEC acting on this issue first, click here.

 

Obama Chimes In On Brokers’ Fiduciary Obligation

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U.S. President Barack Obama speaks during the White House Summit on Countering Violent Extremism in WashingtonBrokerdealer.com blog update is courtesy LinkedIn “InFluencer” and Business Analyst at CBS News, Jill Schlesinger. 

The White House wants to change the way brokers provide advice on retirement accounts. President Obama will endorse a Department of Labor proposal, which would require brokers to act in a customer’s best interest—the so-called FIDUCIARY duty—when working with retirement investors. The rule change is intended to crack down on “backdoor payments and hidden fees,” which cost retirement savers $8 – $17 billion a year, according to Jason Furman, chairman of Obama’s Council of Economic Advisers.

As you might expect, the financial services industry is not happy about the potential shift. The Securities Industry and Financial Markets Association says “This proposal would lead to a number of negative consequences for individual investors.”

I know what you’re thinking: How could a rule that puts my interests first, be bad? Well, according to the SEC, the idea that the industry is plagued by conflicts of interest, “has nowhere been proven,” and would effectively overhaul the entire regulatory regime, ignoring “eight decades of securities laws and regulations. The real kicker, however, is that this is not a Commission rulemaking.” This is a not-so-subtle shot at the Department of Labor, which in issuing this rule change, is stomping on SEC territory. Nothing like an inter-departmental catfight!

In fact, SEC Commissioner Daniel Gallagher thinks that it is “curious” that the DOL didn’t consult with the SEC, especially given that the SEC maintains comprehensive oversight authority with respect to the investment advisers and broker-dealers who would be impacted by the change. Gallagher underscores that the DOL ignores SEC rules, which already address underlying conflicts of interest. But here’s the nut of the problem, according to the SEC: there is no evidence that the industry is plagued by conflicts of interest and the new rules could limit investor access to qualified investment advice and investment products.

The proposal will likely be put out for public comment for several months, so for those who need a refresher on investment professionals and their designations, here are some terms to consider:

Investment advisor: If the advisor is registered as an IA, he or she owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren’t fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.

CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.

Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements.

For the original article found on LinkedIn, click here.