Industry study: White House study on retirement advisers 'flawed'

The financial industry is firing back on White House claims that retirement investment advisers need to be subjected to tougher rules.

A new study commissioned by the Securities Industry and Financial Markets Association (SIFMA) challenges administration claims that serve as the foundation for a renewed White House push to impose new regulations on investment advisers.

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An administration study claimed that when individuals receive investment advice from professionals who are not required to act with their clients’ best interests in mind, they tended to earn lower returns and could potentially be steered to investments that are not best for them — but are profitable for the adviser.

The White House wants to establish new rules that requires retirement advisers to adhere to a “fiduciary duty” to their client, acting solely in his or her best interest.

President Obama highlighted that concern in February, when he renewed the push to impose new Labor Department rules on advisers for retirement plans.

“If your business model rests on bilking hard-working Americans out of their retirement money, then you shouldn’t be in business,” the president said.

But the industry and Republicans, which oppose the new rules, are pushing back on that argument, in a new study written by National Economic Research Associates.

In the study, they argue that the administration failed to justify its eye-popping claims on how much money Americans were losing from bad retirement advisers. Rather, the White House relied on “generalizations and extrapolations” to generate their data.

The study from the administration’s Council of Economic Advisers found that people who receive conflicted advice tend to earn lower returns, which can cost them thousands of dollars over the long run. All told, Americans could be missing out on $17 billion a year due to bad advice.

“Conflicted advice leads to large and economically meaningful costs for Americans’ retirement savings,” the study claimed.

But the industry argues that the administration took an overly simplistic approach to reach that number. By citing research that finds conflicted advice could lead to a loss of 1 percent, and multiplying that by the $1.7 trillion in retirement assets invested in each year, the White House reached that $17 billion figure.

The industry study calls that approach “flawed in multiple ways.” To get a clear picture, the administration should have taken into account other nuanced factors, it says.

The study also notes that the White House made no attempt to determine the benefit brokers currently provide. The financial industry has long warned that if these new rules are put in place, it will drive up costs and drive away brokers for many lower-income Americans.

The industry study also argued that because the White House has not yet put forward a specific set of rules to be imposed, it is impossible to determine the costs and benefits of taking such action.

—This post updated at 2:30 pm.