Stop Senator Collins! She wants to cut a key investor protection from the financial reform bill
- May 18, 2010
- 1 comments
- Posted in Government, Investing, Latest Posts
I’ve praise the Senate financial reform bill here for imposing a fiduciary duty on stockbrokers. And I praised Maine Senator Susan Collins for wanting to extend that duty to brokers who sell to institutions such as pension funds and mutual funds.
Wow, did I ever speak too soon. Last week, Collins declared herself in favor of gutting these protections for retail investors like you and me.
In brief, a fiduciary duty requires that brokers put their customers’ interests ahead of their own. At present, they’re allowed to put their own interests first – for example, by selling you something with a higher commission when a product with a lower commission might perform even better.
Clients aren’t aware of this, of course. They think that their brokers are always looking out for them. The reform bill that passed the House of Representatives would turn that mistaken belief from false to true. It required brokers to apply a fiduciary standard of care.
Yesterday, devious brokers found their champion. Collins proposed an amendment to the reform bill, to exempt from fiduciary duty brokers who sell only mutual funds, variable annuities, and certain closed-end funds. Furthermore, the Securities and Exchange Commission could expand the exemption to brokers selling other products packaged by their firms.
Folks, those are exactly the products that brokers are paid the most to sell and that carry the highest fees. In-house mutual funds cost more, and perform more poorly, then comparable lower-fee funds. The complications of closed-end funds makes them a source of abusive sales. Variable annuities are so laden with fees that it’s a miracle if customers come out even.
Collins wants to remove a broker’s duty of care in the areas where it’s needed most –”where the conflicts of interest are greatest, the investors are least sophisticated, and the sales practices are most abusive,” says Barbara Roper, director of investor protection for the Consumer Federation of America. “It paints a target on the backs of senior Americans who are most likely to be targeted with abusive variable annuity sales practices,” she said.
Roper is right. I was about to write, “Who does Senator Collins think she represents?,” but now I guess we know.
Tags: fiduciary duty, financial reform, Senator Susan Collins
The reform is just what the doctor ordered for the millions of workers, public and private, that contribute (and have been for decades) to their employer’s salary reduction retirement savings plans, i.e; 457(b), 403(b), 401(k).
These salespeople enter the workplace 5 days per week selling their commissioned based variable annuities AND/OR commissioned based mutual funds to the unsuspecting!
This bill will tell the Plan Sponsor: “YOU BETTER STEP UP TO THE PLATE AND OFFER NO-LOAD FUNDS LEST YOU WILL BE IN VIOLATION OF THE LAW”
Joel L. Frank
Pension Columnist for
The Chief-Civil Service Leader
277 Broadway
New York, NY 10007
732-536-9472