Broker-dealers up in arms 401(k) fee disclosure

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This cash cow is about to end for many broker dealers. The writer of ERISA never intended for the 401(k) plan to be utilized as it is today. It is used more as a specualtion tool rather than a retirement savings vehicle.

Some industry observers say the brokerageindustry only has itself to blame for the fact that its compensation arrangements are so complicated.”This is a reflection of the broker-dealers choosing to operate in an environment where they charge everyone differently for identical services,” said Mercer Bullard, an associate professor of law at the University of Mississippi. “The industry… created the complexity and now they are complaining about having to disclose it.”

Revenue sharing agreements, by which mutual funds share revenue with broker-dealers, are just a part of doing business, said Brian Graff, CEO and executive director of ASPPA.

“If everyone paid the same amount of compensation for everything, it would be less complicated but… that’s now how the free market operates,” Graff said.

Brokers are also reluctant to disclose how much different fund families are paying them to be on their platforms. “No one wants to air their dirty laundry,” said one brokerage executive, who declined to be identified because the issue is sensitive for his firm. “There is a lot of vulnerability.”

Right now, each broker-dealer is taking a different approach in its efforts to comply, officials said.

Some firms are opting for a “phone book approach” to the disclosure, which means they are listing the fee they receive for any investment option available to investors with self-directed accounts.

Other firms are disclosing a possible range of compensation for each fund the firm offers.

Confusion is the brokerage industry’s most powerful weapon. They are able to generate huge amounts of cash flow at the investors expense. This must stop particularly in retirement accounts.

Please comment or call to discuss how this affects you and your investment accounts..

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Borzi to AdvisorOne: Fiduciary Reproposal Will Include IRAs

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It continues to be a mystery to me why the financial services industry is set against the fiduciary standard. Removal of conflicts of interest can only help individuals reach their long term goals.

EBSA received many complaints about the first proposed rule including IRAs. Brad Campbell, the former head of EBSA who’s now counsel with the law firm Schiff Hardin in Washington, has been urging Borzi to repropose the fiduciary rule for some time. He told AdvisorOne in a previous interviewthat if the DOL applied its fiduciary rule to IRAs, “broker-dealers who are selling IRAs are going to have to change the way they operate and the way they get paid in connection with those IRAs.” Given the fundamental difference between IRAs and 401(k)s, Campbell continued, there is a valid question in: “Is DOL the right entity to regulate that [IRA] activity, or should this policy really be coming out of Treasury or the SEC?”Borzi argued at an industry conference earlier this year that there has been a “seismic shift” of boomers’ money from 401(k)s to IRAs, and that “the level of protection in the IRA marketplace for people against financial conflicts of interest is of concern.” This lack of protection, she said, “is one of the main reasons” EBSA has included IRAs in its fiduciary rule proposal.

She went on to say that she’s “mystified” by critics who say if the proposed rule were finalized in its current form brokers would be forced out of the IRA marketplace “because they couldn’t get commissions.”

This issue will not go away.

Please comment or call to discuss.

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