Stings and errors of outrageous brokers
by Tom Sullivan
Nice to see Matt Taibbi back at Rolling Stone. But not so nice for the financial services industry.
Taibbi reports on a memo from Jason Furman, Chairman of President Obama’s Council of Economic Advisors, detailing the stings and errors average investors fall prey to from their brokers. “The current regulatory environment,” Furman explains in the document obtained by Bloomberg, “creates perverse incentives that ultimately cost savers billions of dollars a year.”
“For instance,” Taibbi writes, “it might surprise a lot of Americans to know that brokers handling retirement funds aren’t required by law to act in the best interests of their clients.” In nontechnical jargon, you might call this a “red flag.” When brokers “churn” accounts, performing needless trades to rack up fees, long-term investors can lose as much as 1-3 years worth of retirement withdrawals.
Taibbi continues:
The Obama administration is proposing to fix the problem by changing the rules and imposing a fiduciary duty standard on brokers, forcing them to act in their clients’ best interests. If this Labor Department proposal ever gets past the 50 yard line, expect the financial services lobby to carpet-bomb Washington with studies showing that apart from nuclear winter or inviting al-Qaeda to occupy the White House, nothing could be worse for America than forcing brokers to act in the best interests of their clients.
Bloomberg has more details.