Last night, I was reading the Economist, Apr18th-24th, and on Page 67 there was a relevant article entitled: Seller beware. The government tightens rules for firms helping Americans save for retirement
Excerpts:
“Lawyers and doctors are legally obliged to act in their clients’ best interests and now stockbrokers will have to as well.”
“The new rule would replace stockbrokers’ current obligation to ensure that the investments their clients make are “suitable” with, as Barack Obama put it in February, “a very simple principle: you want to give financial advice, you’ve got to put your client’s interest first.”The problem is that many are paid commissions by the asset managers they recommend and thus have conflicts of interest; what is best for them is not always best for clients.”
“One study sent “mystery shoppers” to advisers who were paid such commissions; even when the shoppers had portfolios of low-cost index trackers (which most academics would recommend), they were advised to switch into funds that levy higher fees. Because 401(k)s tend to have lower fees than IRAs, a saver who shifts their money from one to the other may lose as much as 12% of it (and so will receive 12% less a year in retirement).”
“The rule as proposed is 120 pages long and includes enough “carve-outs” and caveats to give lawyers and lobbyists plenty to work with. There are exclusions for “order-taking” and “educational material”, which may sound benign but could in clever hands be used for unscrupulous marketing. A further 114 pages are needed to explain how customers can be charged. Commissions from asset-managers are not ruled out, but must be disclosed.”
I did not see when this new rule is to go into effect.