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Black Caucus Members Balk at DOL Fiduciary Rule
Old 04-02-2013, 01:53 PM   #1
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Black Caucus Members Balk at DOL Fiduciary Rule

Article does not go into any detail as to why the proposed ERISA fiduciary rules would hurt Black investors. I read it twice, but for the life of me I can not grasp the point. Can anyone else help me as to why this would make IRA services unattainable?

Quote:
The Congressional Black Caucus is warning the Department of Labor that its plan to extend ERISA’s fiduciary standard to IRAs will hurt African-American savers.

In a March 15 letter to the DOL, eight members of the caucus, who are also members of the House Financial Services Committee—including Rep. Maxine Waters, D-Calif., ranking member on the committee—said that if brokers who serve IRA accounts are held to “ERISA’s strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations.” If that occurs, “it could cause IRA services to be unattainable by many retirement savers in the African-American community.”
Black Caucus Members Balk at DOL Fiduciary Rule
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Old 04-02-2013, 02:34 PM   #2
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I believe the issue is that, on average, African-Americans tend to have much smaller IRAs than the general populace. Reducing third party compensation reduces the money a broker servicing IRA accounts can make. This might cause them to focus on larger IRA accounts, and perhaps stop servicing folks would could not meet a higher IRA minimum which the Black Caucus feels would be detrimental to the African-American community.
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Old 04-02-2013, 03:07 PM   #3
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It seems to me that there are much better ways to approach the "issue" that the Black Caucus is trying to address. Education of ALL Americans would be a good place to start. There are many companies which don't require a "salesman" or "agent" - just a phone number or an email address. And the price of "entry" at these same companies tends to be much smaller than at the "full service" companies. I'm sure there are others, but Schwab, Vanguard and Fidelity come to mind. Rather than penalize all Americans because one segment of the population appears to be at risk seems heavy handed and inappropriate. Again, with the power that our legislators have, they should help their "constituents" by helping all of us. Just my opinion, of course, so YMMV.
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Old 04-02-2013, 03:17 PM   #4
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It would be very interesting to follow the money and find out why these legislators favor weakening the protections offered to their constituents.

It doesn't cost much at all for a company to offer good, low-ER IRA options.

I'd favor weakening ERISA-type protections for high-income investors before I'd favor weakening them for lower-income investors. It's really not income that is the issue, it's knowledge/information. Some brokers want to prey on ill-informed investors, and this legislation is intended to reduce that.
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Old 04-02-2013, 04:08 PM   #5
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It is human nature to give someone a "pass" who looks like you, and to mistrust those who do not look like you.

When large financial institutions - i.e. "Wall Street" are portrayed as the reasons one is doing poorly financially compared to another group, and the public face of those firms are presented in the media as someone "different" than you are, it becomes very difficult for someone to trust any firm that is associated with that difference. Particularly when the perception exists that the government that has been the true source of financial advancement for those who look like you (I'm not talking about government aid, but about government related jobs).

Because of this it is easier to trust those that look like you and to assume they are always working in your best interest. Not just legislators but also businesses. Particularly with the perception of "no one else is going to help you but us". Few will due the due diligence to look behind the curtain to determine if the "help" being provided is truly help.

I agree with the point that education across the board benefits everyone. But I believe there are many that feel that education would weaken the "support" for firms who look like them. For example: if a discount broker charges a much lower fee than a broker who looks like the person, there are those who would feel it is "unfair" to recommend using the discount broker, due to the impact it would have on the broker who looks like them. Human nature at work.

Just my opinion, from my life experiences...
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Old 04-02-2013, 04:32 PM   #6
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Originally Posted by jollystomper View Post
It is human nature to give someone a "pass" who looks like you, and to mistrust those who do not look like you.
If people are making their financial decisions based on the appearance of the salesmen, CEOs, etc, of a brokerage, then maybe they are ignorant enough to especially need the protections of this law.
In other circumstances (other groups of customers preferring to do business with "people who look like us") we'd just call them bigots and not give a damn about the untoward financial impact on them caused by their prejudice. Maybe that's a more fair and ultimately a more enlightened approach.
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Old 04-02-2013, 04:46 PM   #7
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If people are making their financial decisions based on the appearance of the salesmen, CEOs, etc, of a brokerage, then maybe they are ignorant enough to especially need the protections of this law.
I agree that they need the protection of this law. But the folks who can influence this (in this case the CBC) have convinced those they represent that they (the CBC) know what is best for them because, well, they look like them. It is somewhat analagous to the "you don't have to think, we will do the thinking for you" syndrome. The CBC appears to be more looking out for the brokers than the brokers clients in this case.
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Old 04-03-2013, 04:53 AM   #8
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Originally Posted by Koolau View Post
It seems to me that there are much better ways to approach the "issue" that the Black Caucus is trying to address. Education of ALL Americans would be a good place to start.
I agree, but the problem is that education costs money, and if sequestration has taught us anything, you need to factor in the likelihood that any suggestion for new spending is likely to be cut from the budget. I think, going forward, a lot of these policy issues are going to be driven by how we can work toward the goal, not necessary most efficiently, but rather via the smallest possible cash flow.

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Originally Posted by Koolau View Post
There are many companies which don't require a "salesman" or "agent" - just a phone number or an email address. And the price of "entry" at these same companies tends to be much smaller than at the "full service" companies. I'm sure there are others, but Schwab, Vanguard and Fidelity come to mind.
I think we need to remember that many people are not Internet savvy, and perhaps cannot even afford Internet in their home. I personally wouldn't do any financial stuff whatsoever at public Internet terminals. And trying to open accounts and manage finances over the telephone is impossible as far as I'm concerned, like trying to walk around a messy basement in the dark. So what we end up with is working with someone with an office, locally.

I just checked proximity of offices for the companies you mentioned to one of the towns nearby that has a large concentration of less affluent members of racial minorities. For Schwab and Fidelity, the closest offices were 11 and 8 miles away, too far and too inaccessible. Vanguard doesn't have any offices, at least not in this part of the country.

So it really comes down to how businesses can be motivated to serve an economically-disadvantaged neighborhood. This is definitely not limited to financial services. Most notably, there's a big problem getting grocery stores with affordable prices to locate in such areas.

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Originally Posted by Koolau View Post
Rather than penalize all Americans because one segment of the population appears to be at risk seems heavy handed and inappropriate.
I agree, though that group isn't alone in thinking only about what they're suggesting will affect their own constituents, and ignoring how it generally affects people outside the area from which they were elected.

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Originally Posted by Koolau View Post
Again, with the power that our legislators have, they should help their "constituents" by helping all of us. Just my opinion, of course, so YMMV.
Again, I agree. However, while I find this behavior objectionable, I cannot get as upset about it when what adversely affects me along with so many others is something that is (unfairly) biased in favor of poor people.
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Old 04-03-2013, 04:57 AM   #9
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If they're on the finance committee they're probably just parroting the bogus lines of the industry that funds their campaigns.
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Old 04-03-2013, 10:45 AM   #10
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I agree, but the problem is that education costs money, and if sequestration has taught us anything, you need to factor in the likelihood that any suggestion for new spending is likely to be cut from the budget.
There are massive online education resources like coursera (or bogleheads) that cost very little money. You can make "education" expensive, but you don't have to.
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Old 04-03-2013, 11:09 AM   #11
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Different people exhibit different levels of capability with regard to each kind of learning. Expecting everyone to learn the same way is, literally, unfair, and so that would only be appropriate in contexts where "life is unfair" is an acceptable situation, such as learning how to play a game or perhaps learning to paint. Finance is too critical a subject to leave up to learning the cheap way, that saves overly-stingy taxpayers money but fails to effectively prepare any significant number of people without the education that is needed. That's why part of the ACA (rolling out in 2015) includes explicit support for local assistance organizations to help applicants apply for the subsidy - because that was determined to be the least expensive, fair way of ensuring everyone entitled to the subsidy could reliably be expected to be able to apply for it. Relying on online education, massive or otherwise, was determined to be inadequate.

You can make "education" cheap and thereby ineffective for many, but you don't have to.
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Old 04-03-2013, 12:52 PM   #12
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Quote:
Originally Posted by jon-nyc View Post
If they're on the finance committee they're probably just parroting the bogus lines of the industry that funds their campaigns.
+1

The lobbyists have sold the CBC on a smooth way to screw over their constituents but explain to them that they are actually trying to protect their constituents by preserving their access to the IRA investment markets. Win for the CBC, win for the lobbyists, win for the expensive IRA brokers. Loss for the constituents (and all Americans really).
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Old 04-03-2013, 01:03 PM   #13
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Quote:
Originally Posted by bUU View Post
Different people exhibit different levels of capability with regard to each kind of learning. Expecting everyone to learn the same way is, literally, unfair, and so that would only be appropriate in contexts where "life is unfair" is an acceptable situation, such as learning how to play a game or perhaps learning to paint. Finance is too critical a subject to leave up to learning the cheap way, that saves overly-stingy taxpayers money but fails to effectively prepare any significant number of people without the education that is needed. That's why part of the ACA (rolling out in 2015) includes explicit support for local assistance organizations to help applicants apply for the subsidy - because that was determined to be the least expensive, fair way of ensuring everyone entitled to the subsidy could reliably be expected to be able to apply for it. Relying on online education, massive or otherwise, was determined to be inadequate.

You can make "education" cheap and thereby ineffective for many, but you don't have to.
The other cool thing about this approach is that it provides lots of money to fund jobs for the middle class people who will do the teaching.

Everybody wins!

Ha
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Old 04-03-2013, 01:22 PM   #14
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Quote:
Originally Posted by jon-nyc View Post
If they're on the finance committee they're probably just parroting the bogus lines of the industry that funds their campaigns.
+2

The letter appears to my eyes to have been written for the CBC by Prudential. http://www.sifma.org/uploadedfiles/n...ettertodol.pdf

It cites a Prudential study of African American finances, including this quote:

Quote:
...for those African Americans who use a financial advisor, "product ownership and detailed financial planning increase, and confidence in meeting key financial goals typically doubles"
I think the CBC should write another letter that supports DOL, instead using this quote from the same report:

Quote:
Industry Must Earn Trust
It is no surprise that one impact of the financial crisis
was an erosion of trust in the financial industry. However,
this lack of trust in the industry is not new. There is a
long-standing perception that the financial industry has
fallen short in terms of reaching and serving the African
American community.

African American financial decision makers are searching
for a partnership with financial institutions they can trust,
rely on, and believe in. Loyalty is earned through an ethical
reputation, cultural understanding, and demonstrated
support for the community. Currently, few financial
institutions appear to be meeting these criteria.

When asked, “Has any financial services company effectively
engaged and shown support for the Black community?,”
78% of African American respondents answered “No.” When
purchasing a financial product from a financial services firm,
94% say earning trust is either critical or very important.

Such sentiments send the financial industry a clear
message. Like all Americans, African American decision
makers look to firms that “walk the walk”—demonstrate
a strong ethical foundation, make it easy to do business
with them, inspire confidence, and provide value.
http://www.prudential.com/media/managed/aa/AAStudy.pdf
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