Compliance July 10, 2013

Advocacy Group Slugfest Over Standard

ASPPA says a uniform fiduciary standard would cause confusion, but a coalition of other financial groups said retail customers would benefit from such a standard.
 
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Holding broker/dealers and investment advisers to the same fiduciary standard would actually cause more, not less, confusion for investors, said the American Society of Pension Professionals and Actuaries (ASPPA) in a letter to the Securities and Exchange Commission (SEC).

Their reasoning stems from the differences between broker/dealers and advisers, who are paid differently and whose responsibilities differ when it comes to monitoring (or not monitoring) investment performance. ASPPA was by joined by the National Association of Plan Advisors (NAPA) in sending the comment letter to the SEC. 

The two groups suggested that the SEC instead require investment professionals to provide retail customers with “clear and concise pre-engagement disclosures designed to assist retail customers in the selection of investment professionals.”  

NAPA and ASPPA also stated that coordination with ERISA (Employee Retirement Income Security Act) disclosure requirements is critical. “The commission should take the lead to ensure that consistent disclosures are provided by investment professionals to protect retail customers’ access to investment advice, regardless of the method by which their investment accounts are taxed.” 

Brian Graff, executive director and chief executive of ASPPA, said the uniform fiduciary standard would be a way of “mislabeling all investment professionals who are governed by different requirements.” Graff is also NAPA’s executive director.  

The Financial Planning Coalition, a group that comprises the Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors, has a different outlook. (See “Groups Urge SEC to Uphold Fiduciary Standard.”)Standard Should be Adopted ‘Immediately’

In its comment letter, the coalition strongly urged the SEC to adopt a uniform fiduciary standard, and immediately. “The fiduciary standard should be no less stringent than the existing fiduciary duty standard under the Investment Advisers Act of 1940,” the letter stated. “This standard should be based upon the core principle that, when providing personalized investment advice to retail customers, a financial adviser (however registered) must always act in the best interests of those customers.” 

The coalition also said it was not necessary for the SEC to harmonize other aspects of broker/dealer and investment adviser regulation before acting to adopt the standard. (Schwab Advisor Services released a study examining some of the potential compliance costs that could affect advisers. See “Schwab Survey Reveals Rules Harmonization Costs.”)

The coalition supported its comments with research conducted by the Aite Group for the Certified Financial Planner Board of Standards as well as data from Cerulli Associates that demonstrates a strong trend to serving customers on a fiduciary basis under the Advisers Act Standard. The coalition’s documentation and comment letter can be accessed here. ASPPA and NAPA’s recommendations to the SEC can be downloaded here.

Products July 10, 2013

Vanguard Offers Interactive Tools for Participants

Vanguard is offering retirement plan participants interactive graphics to help them make key decisions.
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Tools such as its “Boost Your Savings” dial and Retirement Analysis Alerts are delivered to participants based on their savings rate, investment mix, other retirement readiness indicators and plan features.

The “Boost Your Savings” dial is a speedometer-like gauge that displays a participant’s current savings rate and recommends a range of increases. Users can turn the dial to the number they want and in one click, submit a request to change their regular contribution amount. In a test of the dial, Vanguard recommended a 1%, 2% or 3% increase. Participants who used the dial between its rollout in December 2012 and May 2013 increased their savings rate by an average of 2%.

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The Retirement Analysis Alerts are delivered in the form of a stoplight to encourage participants to use either of two investment advice services if offered within their plan. One is Personal Online Advisor (POA), which provides a personalized forecast and fund recommendations from Financial Engines. The other is the Vanguard Managed Account Program (VMAP), powered by Financial Engines, which creates, implements, and monitors a custom plan for a reasonable fee. Year-to-date through May 2013, nearly one-quarter of the participants who received these alerts clicked on them. Of those who responded, 12% adopted POA and 6% chose to enroll in VMAP.

“Tools like these can be a remarkably successful way to nudge people into making better decisions by putting healthy choices front and center and giving them a way to quickly choose with basic, compelling and easy-to-use graphical images,” said Amy Cribbs, head of Vanguard’s Participant Experience. “They can make a blunt choice without having to read a lot, think a lot and do a lot of math like they may have to do with traditional online calculators. These new tools lead to direct action instead of general contemplation of your financial situation, which can be so overwhelming to some people that they may instead not do anything at all.”

More information is here.

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