The Securities and Exchange Commission (SEC) released twin recommendations advising Congress to align adviser and broker/dealer fiduciary standards and exact “user fees” from SEC-registered advisers.
The SEC’s Investor Advisory Committee (IAC) says both actions,
which require approval from a divided Congress to take effect, are necessary to
ensure the oversight authority can complete its stated mission of protecting
consumers and maintaining market integrity.
In a statement from the IAC, regulators contend the SEC must
eliminate the regulatory gap that allows broker/dealers to offer investment advice
without being subject to the same fiduciary duty as other investment advisers.
This is necessary to promote fairness in the financial services industry as the
roles of broker/dealers and financial advisers converge through technology and
new business models, according to the statement.
The recommendation also stresses the importance of allowing broker/dealers
to continue to offer transaction-specific advice compensated through transaction-based
payments. The IAC feels this is possible even under a stricter fiduciary standard
for broker/dealers, who are presently only required to sell or recommend products
that are “suitable” for clients.
The suitability standard is generally considered an easier
hurdle than the fiduciary standard applied to SEC-registered advisers, who must
make all investment recommendations in their clients’ best interest.
In a separate statement, the IAC outlines a recommendation
that Congress authorize the SEC’s Office of Inspection, Examination, and Enforcement to impose what would amount to user fees for SEC-registered investment
advisers.
Revenue from the fees would be retained by the SEC to
fund an enhanced investment adviser examination program, including more frequent
on-site examinations. Under current funding and staffing levels, registered
advisers are typically only subject to on-site audits by the SEC once
every 13 or 14 years.
The IAC, in its second statement, calls this level “simply
inadequate to detect or credibly defer fraud.”
The text of the first
recommendation on merging fiduciary standards for advisers and broker/dealers
is available here.
The
second statement on SEC user fees can be read here.
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“Silence is not
golden. It’s a real problem when you’re thinking about retirement,” David
Tyrie, head of retirement and personal wealth solutions for Bank of America
Merrill Lynch, said in a webinar about the firm’s study on family
interdependency and financial challenges. Tyrie also noted that the study
uncovered a troubling lack of discussion among family members.
“Family and
Retirement: The Elephant in the Room” illustrates the need for advisers to
broaden their abilities. “You have to have a new kind of dialogue with people,
one that extends beyond just financial priorities to include their family and
real-life priorities as well,” Tyrie told PLANADVISER. “It was amazing to see
that 70% of people age 25 and over have not discussed any topics concerning
finances or long-term care.”
More than half those
surveyed age 50 and older had not discussed these topics with their adult
children, the study found. The few people who did have these discussions said
they felt much better prepared to meet the future financially.
Increasing longevity
means advisers need to have conversations around funding health care for a much
longer life. Long-term care needs for clients and possibly their parents are
another key issue. Advisers should encourage clients to consider the effects of
longevity on work and leisure in retirement.
Advisers must prepare
to coordinate and facilitate these kinds of discussions with couples and
families, according to Tyrie. Financial advisers now need to know more than just
clients’ tax status, risk tolerance and time horizon for achieving financial
goals. “These are still foundational,” Tyrie noted, “but advisers also need to
ask new and very different questions.”
Generation Interaction
How family
members of different generations interact financially profoundly impacts the
wealth management industry and what advisers do in the marketplace. “Parenthood
doesn’t retire,” Tyrie said. “In today’s economy, adult children and other
younger relatives are turning to older family members for a helping hand.”
One interesting
finding: Many families have someone who is “the family bank,” the person other
members likely turn to for financial advice or actual financial help. Generally
that person has the deepest pockets and, the family believes, the greatest
experience and savvy about financial matters.
People who act
as the family bank are unsung heroes, said Ken Dychtwald,
founding president and CEO of Age Wave, which conducted the study with Bank of
America Merrill Lynch. Motivated by generosity to help grandchildren attend college or
pay summer camp expenses, individuals who take on this role may risk sacrificing
their own retirement for family members.
Half of
pre-retirees age 50 and over said they would make major sacrifices to help
others. Those
helping financially rarely do so because they expect future help or payback. People
in this age group are 20 times likelier to say they are helping family because
“it is the right thing to do” than because “family members will help them in
the future,” the survey found.
An adviser needs to ask if the individual is the family bank, is part of
a blended family or if there are other family dynamics the adviser should know
about, according to Andy Sieg, head of global wealth and retirement solutions
for Bank of America Merrill Lynch.
About a third (37%) of people age 50 and over are part of a blended family, according to survey findings. Nearly a
third of those with stepchildren said it complicates financial planning, a
total equal to those who said they and their spouse have different financial
priorities for their own children than they have for their stepchildren.
Resounding Silence
The survey found that most families
do not discuss key financial topics:
A majority (70%) of adult children age 25 and older have had
no discussion with parents about their retirement and other issues related to
aging;
More than half (56%) of parents age 50 and up said they have discussed
no important financial issues—such as a will, health directive, inheritance
plans and where they plan to live in retirement—with adult children;
Just 24% of siblings age 50 and up have discussed how their
parents will be financially provided for, or cared for in later years;
and
Most people (91%) age 50 and older said they would be
unprepared if an aging parent or relative needed extended long-term care.
“Family and Retirement: The Elephant
in the Room”
explores modern family interdependency and the financial challenges of Baby
Boomers as they attempt to balance relationships with their own financial plans
and financial security.
Bank of America Merrill Lynch surveyed a nationally representative
sample of 5,415 respondents age 25 and up, including 2,104 Baby Boomers (ages
47 to 67) and members of the Silent Generation (age 68 to 88); 252 members of
Generation X (age 37 to 48) and 250 Millennials (ages 25 to 36) for “Family and
Retirement: The Elephant in the Room.” Select
findings are based on an oversample of 2,809 affluent respondents age 50+ with
at least $250,000 in investable assets (including liquid cash and investments,
but excluding real estate). Among the affluent respondents, 2,506 had assets
from $250,000 to $5 million, and 303 had assets of $5 million or more. The
survey was completed in August and conducted online in partnership with Age
Wave and executed by Harris Interactive.