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On investment advice, how much is left for the SEC to regulate?


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When opponents of the Labor department’s investment-advice fiduciary rule still were trying to delay the rulemaking, one of the arguments was that the Labor department shouldn’t set standards for “retirement” investment advice until the Securities and Exchange Commission had set standards generally for a broker-dealer’s investment advice, including for advice about accounts beyond those for which the Labor department’s interpretive powers has a legal effect. Once the Labor department’s rule takes effect (in about 3½ weeks), that point is over.

But the SEC still has on its agenda considering a rulemaking that could set some new standards for a broker-dealer’s advice to a retail customer.

How much is left for the SEC to do?

Perhaps it’s biased by who my friends and neighbors are, but I sense that while many people have investments under employment-based retirement plans, Individual Retirement Accounts, Archer Medical Savings Accounts, Health Savings Accounts, and Coverdell Education Savings Accounts – all of which the Labor department’s rule applies to, few have significant investments outside those forms.

Is my guess right? Is your experience different?

What’s your guess about the portion of the population with investments beyond the tax-favored accounts named above (and § 529 plans, which have some investment-advice regulation by other means)?

Is there survey evidence or an economist’s study on this?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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A friend guessed that for anyone who hasn't yet accumulated the first $1 million in investments, the portion beyond tax-favored accounts is no more than 5%.

Is he wrong?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I don't want to get too personal, but he is wrong for me. I was one that did "aftertax contributions" back in the late 1980s after I hit the basic pretax matched levels because I truly don't believe our taxes at our level will ever go down. And honestly they haven't since then. Maybe they will if either DH or I quit work/retire someday.

And I have things to save for that are expenses before 55/59 1/2 etc where I wouldn't be able to pull tax-advantaged money out easily when and as I needed it-- too many strings/penalties/etc .

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If you want to get philosophical about it, there really shouldn't be any difference between qualified retirement money and any other money. Someone who was never covered by a "retirement plan" could still save money "for retirement" - does that deserve less protection?

The environment has changed an awful lot since ERISA, and some lines are blurry and some are sharp, and they shouldn't always be the way they are.

Anyway, yes I think there are a fair number of people with non-retirement assets.

Ed Snyder

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Thank you for the further perspective.

Perhaps the SEC might answer the lobbyists' call for symmetry by requiring a broker-dealer that advises a "retail" investor to state a legally enforceable obligation to provide advice in the investor's best interest.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Just wondering - would an investment adviser who pledges to fashion their advice based on the needs of the investor have a competitive advantage over those whose advice tends to align better with how much they are paid for recommending a particular investment?

Always check with your actuary first!

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