White House Spells New Rules for All Retirement Advisors

President Obama directed the Department of Labor to “crack down on Wall Street” to protect families from conflicted retirement advice, the White House said in a statement Monday.

The announcement was made in conjunction with the release of a new report by the President’s Council of Economic Advisors, “The Effects Of Conflicted Investment Advice On Retirement Savings.”

“The report released today by the Council of Economic Advisers shows how conflicts of interest, backdoor payments and hidden fees are hurting average Americans, exacerbating income inequality and widening the racial wealth gap,” said Congresswoman Maxine Waters (D-CA), ranking member of the Financial Services Committee, in a statement.


Americans lose an estimated $17 billion every year because of bad financial advice due to conflicts of interest, the White House said, noting that “outdated regulations, loopholes, and fine print” allow advisors to accept a back-door payment or hidden fees that cut into Americans’ retirement savings.

The President’s recommendations to fix the retirement advice market include kicking off a rulemaking process that would require all retirement advisors to abide by a fiduciary, or trust standard.

The Labor Department will publish a rule in the coming weeks that will require retirement advisers to “put the best interests of their client above their own financial interests,” said Secretary Tom Perez of the Department of Labor, in a statement.

Once the rule is published, the Labor Department will accept public comments and hold a public hearing to discuss the proposal, he said.

The Consumer Financial Protection Bureau (CFPB) released a statement Monday voicing the agency’s support for greater transparency in the retirement financial advice and services industry.

“Consumers may not even realize how much money is being skimmed off the top of their retirement savings by biased advice and mystery fees,” said Richard Cordray, director of the CFPB. “Sometimes bad advice can be even worse than no advice at all. The proposed rule that the Labor Department is putting forward today is aimed at addressing these issues and protecting American consumers.”

Written by Cassandra Dowell

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  • It is about time that those financial advisors who have no fiduciary responsibility under any significant fiduciary standard begin to be addressed.

    Financial advisors who place seniors into HECMs with the goal of increasing the asset base they manage should be included in this group of those who need to be reined in. Leveraged investing which results in increased asset management fees to the the financial advisor when using a HECM (and perhaps all reverse mortgages) as the leveraging device should be scrutinized by at least HUD, DOL, the FTC, or the CFPB. During the first five years, if total earnings from the HECM leveraged investments do not exceed the sum of 1) all upfront and accrued costs of the HECM on a clear prorated basis to the proceeds invested by the advisor and 2) all advisor fees charged to the borrower on both a reasonably allocated and apportioned basis, then the financial advisor should be required to refund the difference plus triple damages as measured by the refund.

    Reverse mortgages, particularly HECMs, should not exempted from oversight simply because a HECM is a mortgage. It is also a financial product that is being used (or misused depending on your point of view) as a means to fund portfolios. Most responsible state licensed financial advisors (excluding CFPs in this grouping) such as attorneys and CPAs generally frown on leveraged investing by those over 62 unless the senior can afford to see that investment completely wiped out especially if the investment decision making is being made by someone without any fiduciary responsibility to the senior. Such investing is well outside of the stated purpose clause for HECMs as found in 12 USC 1715z-20(a). There should be a registration form required of all compensated advisors who use HECM proceeds for investing purposes identifying what fiduciary responsibility to HECM borrowers they hold under law with annual reports from those who are not fiduciaries of the HECM borrowers showing the investments and their results with borrowers receiving a copy of the reports but not receiving any portion of the report where others are specifically identified. All reporting related costs should not be borne solely by the advisor. The report should be attested to by an independent CPA. If the costs seem too high, then let the advisor take on the responsibility of a fiduciary in compliance with state law.

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