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Jul
2013
23

Report Reveals Stunning Lack of Fiduciary Responsibility as Lobbyists Block Vital 401k Protections

401k-Statement

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Bank regulations. We can’t seem to get enough of them in place. And the reason is pretty simple: Lobbying power.

Last week, a group of 75 lobbyists hit Capitol Hill to block proposed Department of Labor (DOL) regulations that would force those in charge of 401(k)’s to put retirees best interests before profit. The current industry standards allow financial advisers to work on commission which often results in doing what is best for the wrong bottom line. In a perfect world, these financial advisers would act as “fiduciaries,” however a recent Frontline report shows that nearly 85 percent do not.

The lobbying effort was organized by the Financial Services Institute, a trade organization which represents industry titans such as Pershing, FSC Securities, and TransAmerica.   The results of the current practice are 401(k)’s full of fees and less than desirable results that leave workers unable to retire when they want to.

In a recent article for The Nation, Lee Fang explained the situation:

Financial giants like Fidelity and Bank of New York Mellon Corporation were joined by corporate-funded fronts like the Competitive Enterprise Institute in lobbying the Labor Department. A lobby organization for brokers involved with the campaign says that it helped generate 5,000 letters to the White House, conducted 260 meetings with congressional representatives from both parties and “coordinated” letters from thirty House Democrats and fifty-five House Republicans urging then–Labor Secretary Hilda Solis to drop the rule. One of the leaders of the Democratic mobilization against the rule, Representative Carolyn McCarthy (D-NY), was later feted with a breakfast fundraiser by the Council of Insurance Agents and Brokers.

In September of 2011, the rule was retracted to be reworked. Fortunately for 401(k)-holders, the Labor Department says that it will re-propose the rule earlier this year. And as expected, the lobbying against the rule has heated up.

Congresswoman Ann Wagner (R-MO) sponsored a bill that would add new layers of red tape to the rule, potentially pushing it back for many years. The bill was opposed by the AARP, the Consumer Federation of America, and several other groups who said it will “leave American investors with significantly less protection.” Nevertheless, Wagner’s legislation passed the House Financial Services Committee last month with bipartisan support.

With members of both parties helping financial institutions to keep the current standards, these regulations, already delayed by years, will continue to be bogged down by layers of red tape. In this game of progress vs. profit, the money these firms put into lobbyists’ hands loads the dice.

Charles Schwab and Co. spent at least $50,000 alone helping to pass Wagner’s legislation. When the rule was debated in 2011, Columbia Financial Advisors, Fidelity, the Financial Services Roundtable, John Hancock Financial, AXA Financial, Ameriprise, Allianz of America, MetLife, Charles Schwab, LPL Financial, Hartford Financial, TD Ameritrade, and other financial firms spent several millions lobbying the federal government on the issue, according to lobby disclosures filed with the Senate.

The future of the fiduciary rule is now in limbo, likely to be watered down (at best) or buried (at worst) in the avalanche of unfeasible problems cluttering the beltway.  

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