On Thursday, Sen. Elizabeth Warren (D-MA) sent a letter to the head of the Securities and Exchange Commission (SEC) accusing banks of lying about the pending rule requiring financial advisers to put clients’ interests ahead of their own, thus potentially violating securities laws.
The rule would expand the fiduciary duty standard to cover brokers advising people seeking advice about retirement investments, which currently allows them to steer clients toward the products that make themselves more money at the expense of their clients’ needs. Americans lose an estimated $17 billion a year to this conflicted advice every year.
The financial industry has put up a big fight to the proposed rule change, which is being issued by the Department of Labor (DOL). But in her letter, Warren argues that the public statements they’ve made claiming that the rule will harm their ability to serve their clients contradict what they’ve told their investors in private.
For example, in July of last year, as she points out, the CEO of Lincoln National said in his public comment letter to the DOL that it would be “so burdensome and unworkable that financial advisors and firms will not be able to use it.” Yet, her letter says, two months earlier he told his investors that he didn’t see the proposed rule “as a significant hurdle for continuing to grow that business.” An executive vice president at Prudential Financial said in a comment letter that the rule would pose a “significant challenge” that would “significantly increase” its costs, yet a different official told investors that same month that it wouldn’t stop the firm from offering those services.
Similarly, the president of Jackson National Life Insurance Company said publicly that the rule will be “very difficult, if not impossible for financial professional and firms to comply” with, but a month later told investors that a similar rule in the United Kingdom actually led to an increase in sales and that the company is prepared to “adapt faster and more effectively than competitors.” The CEO of Transamerica’s Investment and Retirement Division called the rule “unworkable” in his comment letter but told investors that the company had plenty of “flexibility.”
Warren raises concerns that the contradictory statements violate securities laws that prohibit companies from misleading investors on facts that could affect their business value and stock price, leaving investors to make sense of which statements are true. “This is exactly the scenario that our securities laws are designed to prevent and precisely why compliance with these laws is so important,” she writes.
“Corporate interests have become accustomed to saying whatever they want about Washington policy debates, with little accountability when their predictions prove to be inaccurate,” she adds. She is calling for an SEC investigation into the statements banks have made.
Warren has already raised the alarms about this problem, sending a similar letter with Rep. Elijah Cummings (D-MD) in February to DOL Secretary Thomas Perez and the director of the Office of Management and Budget, which is also working on the rule. That letter requested that the agencies “make careful note” of the conflicting statements as they work on a final rule.
Financial firms have claimed that requiring them to give advice that’s in the best interest of their clients and not accept payments that could create conflicts of interest — something they claim they already do — will mean they can’t offer advice to the lower-income clients who need it most. Yet experts say the victims of conflicted advice would be better off if they’d never met those advisers in the first place. Employers have made a dramatic shift to 401(k)s, which require individuals to make smart investment decisions to ensure a good retirement, but a third of working-age people have less than $1,000 saved up for their golden years.