Remember how Congress and the President were going to protect consumers - especially middle and lower income people - from credit card companies? The Credit Card Accountability, Responsibility and Disclosure Act instead has driven up the average interest cost on a credit card by 2%. It’s also caused issuers to not issue cards to lower income folks which then drives those people to payday/check cashing stores when they need credit.
Now Congress - through the Dodd-Frank Financial Reform bill - is looking to unleash some more untended consequences on middle and lower income people.
Regulators are looking to possibly extend whats known at the fiduciary standard to broker-dealers. Currently, broker-dealers had to verify that a particular transaction was suitable for the client. A fiduciary standard increase the responsibility of the broker-dealer in offering investment services.
This may seem like a good thing considering the financial meltdown that we just came through. However, that extra responsibility will mean extra costs.
The Life Insurance Marketing and Research Association conducted a survey of members of the National Association of Insurance and Financial Advisors. What the survey finds is that if the new fiduciary standard increases costs by 15% then 65% of members said they would be forced to only work with affluent clients. The middle market of clients with incomes of $100,000 or less would simply not offer enough reward to deal with the extra costs.
So in the interest of helping consumers, Congress is going to force lower and middle income earners to brave the financial market with no help instead of perfect help.
Comments
This column presents a misleading choice between the need to provide consumers protection and the ability to serve the average investor.
The proposal in question – the extension of the fiduciary standard of care –would ensure that securities brokers put their customers’ interests first when providing investment recommendations. For example, they would be required to inform customers of conflicts of interest. Investment advisers have long been operating under this standard. The proposal would close a loophole that has allowed brokers to give advice under a lesser standard.
Most customers would be shocked to hear that a financial adviser cannot afford to disclose conflicts or give objective advice. I’m perplexed as to why putting a client’s best interests first would create a financial hardship on advisers, especially since Mr. McEwen only cites a survey of a trade group long-opposed to a fiduciary standard. In reality, extending the fiduciary standard to brokers would likely build a stronger bond with existing clients.
If a financial adviser already upholds a fiduciary standard of care, then the proposal should not change a thing – for financial advisers or consumers.
Hard-working Americans should always be able to obtain trustworthy financial advice so that they may plan for the future with safety and confidence.
John K. Ritter, CFP®, CFS
NAPFA Registered Financial Advisor
Ritter Daniher Financial Advisory, LLC
Cincinnati, OH
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