The U.S. Securities Industry and Financial Markets Association (SIFMA) has released a report the aims to find flaws with a recent White House report estimating the financial impact of conflicted financial advice.
The U.S. securities industry lobby group released a report Monday from National Economic Research Associates (NERA), which criticizes a recent report from the White House’s Council of Economic Advisors (CEA) that was issued in support of the government’s call for a proposal from the U.S. Department of Labor that will recommend a new fiduciary duty for retirement advice.
The CEA report, which was released last month, found that, on average, industry conflicts of interest cost investors 1% of their annual return. Given an estimated US$1.7 trillion of retirement account assets, it estimated that the aggregate annual cost of conflicted advice is about US$17 billion each year.
The NERA report argues that the CEA report’s estimates of the cost of conflicted advice is not fully supported by the academic literature that underpins those estimates, and that its approach is flawed in multiple ways.
It also says that the government’s report does not attempt to quantify the benefits provided by brokers, such as encouraging saving, diversification, risk reduction, and other intangible benefits of their services. “The [CEA] report does not consider the possibility that the benefits received by consumers may exceed the fees, thereby nullifying the apparent underperformance,” it says.
Finally, the NERA report also says that the CEA paper ignores the negative consequences of regulatory reforms in other jurisdictions, such as the UK, including the risk that brokers stop serving smaller accounts, or that fees increased on smaller accounts, following regulation designed to reduce conflicts of interest.