Those resources are increasingly needed. Some 10,000 people will turn 65 every day from now until Dec. 31, 2030, Borzi pointed out in a March speech to the Financial Services Roundtable, an industry trade association that opposes her plan. She told the group the fiduciary standard is a “critically important” consumer protection.
“People who hold themselves out as experts, who cultivate a relationship of trust with clients, need to put their money where their mouths are,” she said. “They need to actually put the clients’ interest first.”
Chamber Lobbying
Borzi’s opponents are Wall Street banks with brokerages, mutual fund companies that thrive on clients who roll their 401(k) plans into IRAs, insurers selling annuities, and independent brokers and financial planners. Besides Fidelity and Morgan Stanley, they include Bank of America Corp., UBS AG and Ameriprise Financial Inc., along with finance trade groups, the U.S. Chamber of Commerce and American Council of Life Insurers.
The industry contends Borzi’s change would throw the system into chaos by making it too expensive for financial firms to manage most retirement accounts.
Typically, customers can turn to one of two kinds of investment professionals: brokers, who generally offer limited advice and are paid a commission on each trade; and investment advisers, who provide more personalized counsel and charge an annual flat fee based on the size of a client’s portfolio. Both are regulated by the SEC, though when dealing with retirement accounts they fall under Labor’s purview.
‘Suitable’ Standard
Brokers are held to a “suitability” standard, meaning they must reasonably believe their recommendation is right for a client. Investment advisers operate under the fiduciary standard, which imposes a much tougher overall responsibility for the customer’s welfare.
One rationale for changing the rules is that it would be easier for investors to expect the same treatment no matter who they deal with. Brokers, though, say that if they became fiduciaries it would create more paperwork and a higher risk of lawsuits from displeased customers, raising costs so much they’d be forced to switch clients into advisory accounts.