Who is the Retail Investor Protection Act trying to protect?

who-is-the-retail-investor-protection-act-trying-to-protect

The Republicans in the United States House of Representatives are working on a bill to prevent the Obama administration from passing rules requiring people who work with peoples’ retirement accounts (IRAs) to act in their clients’ best interest.

Currently if you are retiring from a company with a 401(k) plan, and you go to a financial services company to invest all of the money you’ve saved up in your 401(k) over the years, the financial services company can have a policy to figure out what option will generate the highest commissions for them, and advise you to do that. If you later complain that they gave you bad advice — your lawyer will tell you that it is perfectly legal for them to give you advice that is best for them, not necessarily best for you.

The Obama administration, specifically the Department of Labor which has some jurisdiction over retirement plans wants to change that. The Republicans want to pass the Retail Investor Protection Act to leave things as they are. The Republican line is that they want the same rules to apply to all accounts, not just retirement accounts, and that the department of labor should wait until the Securities and Exchange Commission (SEC) passes rules. That is about the same as telling the administration that their new rules should wait until hell freezes over.

The Republicans do have some points. They claim that this rule will deprive investors of valuable services and advice. They usually talk about that in front of groups of people who make a living providing those services and advice. And they are right: if your job is to cultivate relationships with retirees, and then advise them to do things that generate high fees and commissions for you, you will have a problem making a living under these rules. We will concede that these rules could be a problem for highly sophisticated investors who do their own research and make their own decisions (and we would have no objection to having an exception for that case) but overall it is the Obama Administration that his trying to protect American savers, not the Retail Investor Protection Act.

The administration has been working with the different parties and addressing concerns for years. It is time to finally move forward with actually protecting investors.

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