The other day I tuned in to CNN's "Situation Room With Wolf Blitzer," because I had nothing better to do and it would be hours before "America's Next Top Model" came on.
At one point, the news program took a break to run a heartrending vignette about a couple who had just dropped off their child at college.
"How are we going to afford this?" the wife asked wryly, back in the car. "It's these new regulations they're pushing in Washington that worry me. They want to make it really hard to get advice from our financial advisor."
"No more help from Anne?" the husband asked, flabbergasted. "We're gonna call our senators."
By then, of course, I recognized this slice of life as an example of an old discredited genre, the "Harry-and-Louise" ad. That's a reference to the fictional couple who starred in a TV campaign launched by the health insurance industry against the Clinton administration's healthcare reform bill in the 1990s.
The elements are the same: Putatively middle-class couple discovers to their horror that Washington is plotting to interfere with their lifestyle, even though the policy they're grousing about would actually be a boon to ordinary folks like them.
The new campaign is sponsored by Americans to Protect Family Security, a front for the life insurance and financial advisory industries. Its target is a proposed new Department of Labor regulation to simply require that the sellers of annuities, life insurance, IRAs, 401(k) investments and other such retirement products place their clients' interest first.
The clients' interest must come before that of the salespeople, or the firms paying them salaries or commissions to steer clients to investments that may not be right for them. That means they must act as "fiduciaries," to use the legal term. The idea is to ensure that the advice customers seek will come unadorned by the self-interest of the seller.
The explosion in self-directed retirement savings has made this a big deal. Labor Secretary Thomas Perez says that conflicts of interest in the retirement security industry cost IRA investors $17 billion a year. (The Department of Labor's fact sheet on the proposal, which it hopes to implement by the end of the year, is here.)
These conflicts, Perez told a Senate committee last month, "reduce returns for affected savers by about 1 percentage point per year"--which could reduce the victims' retirement nest eggs by more than a quarter over 35 years of savings. And this happens out of the victims' eyesight, because the industry relies on confusion and opaqueness to conceal its conflicts from the public. Under the DOL regulation, the department and aggrieved customers alike would have the right to enforce the rules.
The industry, naturally, treats this as the end of civilization as we know it. During a four-day hearing by the Department of Labor this week, an industry lobbyist fretted that "the new conflict of interest and fiduciary definition rules will generate uncertainty, cost and potential liability." The life insurance industry warned that the rules would prevent customers from continuing "to enjoy the access they currently have to certain financial products."
Well, yes. Customers would lose access to retirement products with hidden fees and conflicts of interest that cost them money.
Consumer advocates, by contrast, are all for the change. Dennis Kelleher, a former corporate lawyer who now heads Better Markets, a watchdog group, praises the proposal as one that would mean that "tens of billions of retirement dollars stay in Americans' pockets and not be moved into Wall Street's profits. That is why Wall Street will not stop trying to kill the rule it hoped the American people would never see."
Antoinette Schoar, a finance expert at MIT's Sloan School of Management, said at the hearing that "a market where investors can’t distinguish the quality of the advice leads to a race to the bottom."
The industry's position that the new rules will make retirement investment products more expensive, prevent customers from seeking any advice, and interfere with trusted relationships between customers and their advisors are a familiar variety of pap. That's the theme of its TV ads.
The whole point is that millions of customers can't tell if they should trust their advisors, because the latter's conflicts of interest are often well-hidden. When one hears the characters in the industry's college-parents commercial worrying that they'll get "no more help from Anne," their trusted advisor, one feels the urge to knock some sense into their heads.
That great advice you're getting from "Anne" may do more to line her pockets than your own--and you wouldn't even know. If the Department of Labor regulations go through, then you'll know.