WEST PALM BEACH, Fla. – Should retirement investment advisers be required to put their clients’ best interests ahead of their own?
This isn’t an idle question.
About 238 Florida firefighters, police officers, teachers and other public sector employees have gone to court, claiming they were duped into opting out of the state pension system by financial advisers who pushed them into riskier private investments.
The company involved, Primerica, is a multi-level-marketing business that recruits tens of thousands of salesmen who get commissions on their sales, and also commissions on the sales of those they recruit to be part of the sales force.
It operates in some respects like Amway. But instead of selling bath products, it’s selling financial products.
The sales practices of Primerica and those Florida public sector workers took center stage this week during a U.S. Senate subcommittee hearing over a proposed new federal regulation that would require investment advisers in the individual retirement account market to be liable if they put their own financial interests ahead of their clients.
Primerica President Peter Schneider testified that the regulation would be “complex and burdensome” on the industry and lead to lawsuits.
That led U.S. Sen. Elizabeth Warren, D-Mass., to bring up the Florida public service workers who gave up their lifelong pensions due to sales pitches from Primerica’s agents.
“Is it a good idea for firefighters on the front edge of retirement to move out of a guaranteed benefit that was going to cover them for all their lives and move into a risky investment that would make a lot of fees for your agents?” Warren asked.
Schneider responded that every retirement situation is different.
“In the state of Florida, if you retire and then die two or three weeks later you have no ability to leave your money to your loved ones,” Schneider answered.
“Are you suggesting that these 238 people were weeks away from dying and that’s why they all got this advice?” Warren asked.
“The courts dismissed those cases,” Schneider answered.
“Because it’s legal activity,” Warren answered. “I think we’ve established that, Mr. Schneider. That no one broke the law. The question is whether the law should be changed.”
A report issued this year by the White House’s Council of Economic Advisers estimated that Americans, on the whole, lose about $17 billion a year in retirement savings due to conflicts of interest with their investment advisers.
“Selecting and managing IRA investments can be a challenging and time-consuming task, frequently one of the most complex financial decisions in a person’s life, and many Americans turn to professional advisers for assistance,” the report said. “However, financial advisers are often compensated through fees and commissions that depend on their clients’ actions. Such fee structures generate acute conflicts of interest: the best recommendation for the saver may not be the best recommendation for the adviser’s bottom line.”
But the push to expand consumer protection measures has met stiff resistance from Republicans in Congress, who generally view industry regulation as unneeded governmental meddling.
As for Schneider, he kept sidestepping Warren’s question about whether the interests of those 238 Florida public sector workers were put above those of Primerica’s agents.
But later in the week, Alicia Munnell, the director of the Center on Retirement Research at Boston College, had a straightforward answer as to whether it is sound retirement advice to opt out of a pension.
“Retirees opting for a lump sum immediately lose the advantages of lifetime income and become responsible for their own investments,” Munnell wrote. “This shift might be fine for those with a serious illness about to die and for the wealthy with a substantial nest egg, but for most retirees it’s a bad idea.”
Frank Cerabino writes for The Palm Beach Post. E-mail: email@example.com