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Consumer Advocates: Brokers Are Exploiting DOL Rule

October 10, 2017

A consumer advocacy group says brokers who are moving clients from commission-based accounts into apparently more expensive fee-based accounts are violating the Department of Labor’s fiduciary rule, according to ThinkAdvisor.

Doing so violates the rule’s requirement for reasonable compensation in both fee- and commission-based accounts, Barbara Roper, director of investor protection at the Consumer Federation of America, and Micah Hauptman, the group’s financial services counsel, write in a letter to the DOL, Finra and the SEC, according to the publication. As well as violating the DOL’s rule, which purports to require retirement account advisors to put clients’ interests first and went into partial effect in June, advice firms engaged in the practice are also violating SEC and Finra rules, Roper and Hauptman claim, according to ThinkAdvisor.

They also dismiss the claims of “industry lobbyists” who say that brokerages are transitioning commission-based accounts because of the DOL’s rule, the publication writes.

“It’s possible that industry lobbyists are simply engaging in their all too familiar misrepresentations of the rule’s impact, and it is important to note that those making this claim have failed to provide concrete evidence to back it up,” Roper writes, according to ThinkAdvisor.

But Kent Mason, an attorney with Davis & Harman who opposes the DOL’s fiduciary rule, tells the publication the practice of moving clients into fee-based accounts “is happening solely because of the costs and risks imposed by the DOL rule.”

Barbara Roper

Such accounts are often the only ones still available to them as a result of the rule, he tells ThinkAdvisor. And such clients “are the lucky ones,” while “millions of investors” whose accounts aren’t large enough to qualify for fee-based accounts will be squeezed out of personalized financial advice entirely as a result of the rule, he tells the publication.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.