Will Obama’s New Regulations Wreak Havoc Upon The Elderly? Financial Advisers Say Yes.

Patrick Howley Political Reporter
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If you’re over 65 and you like your financial adviser, there’s a good chance you won’t be able to keep your adviser.

President Obama is set to speak at AARP headquarters in Washington, D.C. Monday afternoon alongside Sen. Elizabeth Warren and consumer protection chief Richard Cordray. Obama will announce new regulations from his Department of Labor, which will set new rules governing financial managers and advisers.

The White House said that it wants to abolish “hidden fees that hurt consumers and back-door payments that help Wall Street brokers.”

But the financial lobby is freaking out, claiming that Obama’s new rules — which have yet to be announced by the White House or independently verified — will take a huge toll on financial planners and affect millions of retirees.

A financial planner trade organization told The Daily Caller that the new rules come with a catch: they will effectively prohibit retired persons from keeping their trusted financial advisers if they make new investments during retirement.

“The rule will say that if you’re an adviser with a 401(k) helping participants, and you want to look at a lifetime income option [for your client] then you as an adviser would be effectively blocked from working with that participant if there’s any fee difference,” Brian Graff, executive director of the National Association of Plan Advisors, told TheDC, citing insider talk and a past Obama administration attempt in 2010 to push through similar rules.

If the fee you pay your financial adviser in retirement — for products like annuities — is even slightly higher than the fee you were paying your adviser when you were working and just had a 401(k) plan, then you will have to pay a 15 percent tax penalty on your total account value, Graff said, citing insider talk.

So if your 401(k) is worth $100,000, then you’ll have to pay a $15,000 penalty if you want to make new investments that would lead you to pay your adviser even one dollar more. Seniors might have to drop the advisers who help them with their 401(k) rollover. 

“They have this view that you should always keep your money in the [401k] plan,” Graff said of the Obama administration. “We think that’s a dumb idea. An adviser you trust shouldn’t be blocked from working with you.”

“No one’s going to pay a 15 percent tax to keep their adviser,” Graff said. “This isn’t 95 dollars like the health care one. We expect that millions of 401(k) participants will be affected.”

“The irony is that you could then go down the street and get a new financial adviser who might charge you 200 percent more, and there’s no rule preventing that,” Graff said.

“Is it theoretically possible that you’ll have exactly the same amount of money in your rollover as you did in your 401(k)?,” Graff said. “No. Why then would you roll over?

“In the zeal to try to protect people they’re preventing people from being able to do what they want,” Graff added, noting that the potential rule is a “huge deal” in the financial industry.

The rule is expected to go through the regulatory process and take effect in a few months.

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