Not surprisingly, at least some people at the Securities and Exchange Commission have reacted negatively — this is stepping onto their turf, after all. And the lobbyists are, naturally, out in full force.
But with sufficient White House willpower, the administration can see this through. What is needed is a change in the rules set by the Department of Labor, which has jurisdiction over retirement-related issues.
No doubt industry defenders will claim that current practices benefit small investors — a point disputed directly by the CEA. The broader and more interesting question is: Where are the statesmen in the financial industry? Where are the leaders who push for a race to the top, by better serving their clients’ best interests?
Jack Bogle, who built his investment-management company, the Vanguard Group, on exactly this principle, with a clear focus on lower fees at every opportunity, has come out strongly in favor of the administration’s proposal. Unfortunately, his remains a lonely voice.
Everyone who provides investment advice to retirement savers should act solely in the clients’ best interests. And, judging by the high number of distinguished and honorable professionals in the industry, many advisers, if not most, already do.
But there also are too many people being exploited, which harms them individually and discourages savings more broadly. That is why the law should be amended to eliminate as many potential conflicts of interest as possible, by requiring all retirement advisers to act in their clients’ best interests at all times.
Read the full post at MarketWatch.
Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management.