WASHINGTON–The Obama administration on Wednesday said why they acted in the face of a lack of regulation of financial planners who guide millions of Americans seeking help with investments and retirement accounts.
In April, the Labor Department finalized new regulations which would require retirement advisers to put the best interests of their clients’ first. Ideally, this would help protect investors in their dealings with planners.
“When you go to your doctor or lawyer they have legal and ethical reasons to protect your best interests but when you go to your financial advisor, some do and some don’t,” Labor Secretary Thomas Perez said. “Protecting customers should not only be a marketing slogan, it should be the law.”
Marilyn Mohrman-Gillis, executive director of the non-profit Center for Financial Planning, said there is no specific regulation aimed at financial planners. But she said advisors can be certified regarding their trustworthiness and right to offer financial advice.
“We have a fragmented regulatory system that allows people to label themselves as financial advisors when they are just sales people, they have no legal obligation to put the client first,” Mohrman-Gillis said. “It is substantive and rigorous to get certified by the CFP, so if a customer chooses someone with a certification of this rigor, then they are choosing someone who is competent.”
The remarks came at a Financial Literacy and Education Committee meeting at the U.S. Treasury Department.
Perez referenced the Standard & Poor’s Global FinLit Survey conducted last year to highlight the Americans shortcomings when it comes to financial education. The survey, which consisted of five multiple choice questions on financial decision making concepts, interviewed more than 150,000 randomly selected adults in 140 countries. Just 57% of the Americans surveyed passed the test, earning them the 14th spot.
Treasury Secretary Jacob Lew said the inability to understand basic financial concepts such as inflation and risk diversification makes it hard for people to make smart choices, especially when planning for retirement.
“Among those with self-directed retirement plans, about half report not feeling very confident in their ability to make good investment decisions,” Lew said. “This lack of confidence points to the need for both good financial education and sound investment advice.”
Perez asserted dignified retirement is a “critical pillar of middle class security,” and it is the duty of the Department of Labor to encourage Americans to save up for that last chapter. In order to do this, the level of financial literacy must improve among citizens.
“We are proud of leading on so many things, but at the moment, we have some work to do in the area of financial literacy,” Perez said. “This is an all hands on deck enterprise.”
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