The Securities Industry and Financial Markets Association on Monday blasted research produced by the White House in its recent efforts to push forward a fiduciary standard for advisors, calling its approach flawed.
In February, the White House Council of Economic Advisers released a report showing conflicts of interest on retirement assets result in annual losses of 1 percentage point for affected investors. The Council estimated the aggregate annual cost of conflicted advice is about $17 billion each year.
But Monday’s report completed by the National Economic Research Associates on behalf of SIFMA contends the White House report makes “generalizations and extrapolations which they often do not fully support." Perhaps the biggest point of contention is that the White House’s aggregate cost of $17 billion was not produced or backed up by academic studies, but a figure generated by the White House economists.
NERA showed the White House arrived at the controversial $17 billion figure by taking 1 percent of the total value of load mutual funds, plus the total value of annuities in IRAs, which stood at approximately $1.7 trillion at the end of 2013. But the report provides no support for its decision to computing aggregate losses by adding in the entire $600 billion market for annuities in IRAs, NERA's analysis argues.
The White House report also fails to quantify the benefits investors could reap from the current or alternate regulatory structure, NERA says, making comparisons impossible. "It is a basic tenet of economics that to conduct a cost-benefit analysis of an alternative public policy one needs to have a well-articulated proposal," the study states. "The [White House] report does not put forward such a proposal."
Additionally, NERA’s review contends the White House report ignores the negative impacts of similar fiduciary regulation outside the United States. According to NERA, a study from Europe Economics found that just in the first three months of 2014 about 310,000 clients stopped being served by their brokers because their wealth was too small for the broker to advise profitably.