One investment adviser is sick and tired of the financial industry's threat that mom-and-pop investors will suffer if investment-advice standards are raised.
Sheryl Garrett, founder of the Garrett Planning Network Inc., said that investors with low net worth can be served in a market where all financial advisers must act in their best interests.
She dismissed the argument that under a uniform fiduciary duty standard middle-income Americans would be priced out of the advice market because brokers would abandon commissions and charge fees based on assets, as most investment advisers do.
She points to her own network of more than 300 advisers who work on an hourly fee.
"We're actually starting to see that movement grow," Ms. Garrett said during a media briefing in Washington on Tuesday hosted by the Consumer Federation of America, AARP, the AFL-CIO and Americans for Financial Reform. "Can't this middle-market be served? Yes, it absolutely can and it should be for the sake of our entire society under a fiduciary standard."
She highlighted firms such as Betterment, WealthFront and LearnVest that are introducing new investment-advice models that target lower-asset investors.
"We're seeing the marketplace step up and meet the demand," Ms. Garrett said via teleconference. "If the old-school delivery channels don't work under the fiduciary standard, they need to evolve."
Both the Department of Labor and the Securities and Exchange Commission are considering rules that would require brokers to act in the best interest of their clients, a fiduciary-duty level of service that currently governs investment advisers. Brokers are held to a suitability standard that allows them to sell high-priced investment products as long as they meet their clients' needs.
The DOL is expected to propose a rule later this year that would expand the definition of "fiduciary" for retirement-plan advisers. The SEC is grappling with a decision on whether to propose a regulation that would impose a uniform fiduciary standard for retail investment advice.
Officials from the organizations hosting Tuesday's media briefing warned that the sale of more expensive investment products under the suitability standard is chipping away at the retirement savings of many Americans.
"That half a percent or more over the long-term for a retirement-type of investment is tens of thousands of dollars that middle-income investors cannot afford to do without," Barbara Roper, director of investor protection at the Consumer Federation of America, said at the meeting in Washington.
Ms. Garrett also shot down another argument that industry makes - namely, that investors would have a limited array of financial products to choose from if the commission model erodes.
"They will not be able to purchase the mediocre and really crappy investments," Ms. Garrett said. "They're not going to be allowed to be peddled - only the good stuff."
She was particularly critical of annuities. She cited a court case in which she was an expert witness in which the financial adviser inappropriately put clients in variable annuities.
"If she had VA salesperson tattooed on her forehead, which is one of my recommendations," the investors would have been better protected, Ms. Garrett said.
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