Financial wellbeing programs that help employees better manage their finances, pay down debt, and plan for retirement have become commonplace among private US employers. Employees want this kind of help and employers are increasingly eager to offer it. Bank of America Merrill Lynch’s 2018 Workplace Benefits Report, however, finds that only one third of employees are actually participating in these programs, even though many more are struggling with financial fitness, Nick Otto reports at Employee Benefit News. One potential explanation for this low level of engagement is that the financial wellness benefits employers are offering are misaligned with employees’ own priorities:
Employers tend to focus on actions to manage immediate financial needs, such as budgeting and handling expenses, according to the study. Meanwhile, employees mostly prioritize long-term financial goals, such as tactics that help them save and invest for the future. The report finds workers are looking to their employers to help manage their financial lives, shining a light on what employees seek in an employer-sponsored financial wellness program.
Employees feel the best approach to improve financial wellness is getting a personal financial assessment, supported by specific actions to take. Additionally, employees would also like help measuring their progress, through tracking and measuring of accomplishments.
Another notable finding from the report is that few employees recognize the role of health care costs in their financial planning: 7 percent identified health care as a key component of financial wellness, even though more than half said they had skipped or postponed a medical need to save money. The connection between health care costs and financial wellbeing is particularly salient in the US; for instance, many experts have promoted the use of health savings accounts as long-term savings and investment vehicles, comparable to 401(k) plans for retirement.
The Fifth Circuit Court of Appeals issued a ruling on Thursday vacating the controversial “fiduciary rule” enacted by the Labor Department during the Obama administration, which would have required financial advisors to act in their clients’ best interests when advising them about retirement. The ruling overturned a February 2017 district court decision upholding the regulation, with a three-judge panel ruling 2–1 that its implementation had violated the Administrative Procedure Act. Politico’s Morning Shift newsletter called Thursday’s decision “a victory for the financial services industry,” whereas labor activists were dismayed:
A range of business associations — including the U.S. Chamber of Commerce, a plaintiff in the case — said in a joint statement that the court “ruled on the side of America’s retirement savers.” The groups have thrown their weight behind an effort by the Securities and Exchange Commission to draft a separate standard for advisers, which they say should “not limit choice for investors.” On the other hand, Christine Owens, executive director of the National Employment Law Project, said the ruling “threatens the Labor Department’s very ability to protect retirement investors now and in the future” — and encouraged an appeal.
Thursday’s decision was handed down just two days after another federal court, the Tenth Circuit, issued a ruling in a separate case concerning the treatment of fixed indexed annuities under the rule. That court found that the Labor Department had satisfied its obligations under the Administrative Procedure Act in amending the rule to make sales of such annuities ineligible for Prohibited Transaction Exemption 84-24 (Proskauer attorneys outline the particulars of the ruling in more detail at JD Supra).
In agreeing with the department’s decision to amend one facet of the fiduciary rule, the Tenth Circuit’s ruling could be interpreted to implicitly uphold the regulation as a whole, although that was not at issue in the case. Yet another fiduciary rule case is still pending in federal court as well, so industry experts are advising retirement plan sponsors to remain compliant with the rule for the time being, Paula Aven Gladych notes at Employee Benefit News:
After US Secretary of Labor Alexander Acosta announced last month that the department could find “no principled legal basis” to delay it any further, the Obama administration’s controversial fiduciary rule went into effect on Friday, June 9 as scheduled—though its legal enforcement mechanisms will not become effective until January 1, 2018. The rule, which requires financial advisors to act in their clients’ best interests when advising them about retirement, may still be revised through regulatory or legislative action, but in the meantime, employers that sponsor retirement plans now have an obligation to ensure that their advisors are following the fiduciary standard, experts tell Paula Aven Gladych at Employee Benefit News:
At this point in the process, retirement plans should know if their adviser is working in their best interest or is a broker-dealer with potential conflicted advice offerings. If they don’t know that, they need to call their service providers to find out. Plan sponsors should also review the letters they receive from their plan advisers and take note of whether some services they were receiving in the past won’t be available because their service provider can’t provide them without having fiduciary status. …
Morgan Stanley is poised to implement a project known as “next best action,” which will equip its 16,000 financial advisors with machine learning algorithms to help them provide better and more timely recommendations to clients, Hugh Son reports at Bloomberg:
At Morgan Stanley, algorithms will send employees multiple-choice recommendations based on things like market changes and events in a client’s life, according to Jeff McMillan, chief analytics and data officer for the bank’s wealth-management division. Phone, email and website interactions will be cataloged so machine-learning programs can track and improve their suggestions over time to generate more business with customers, he said. …
The idea is that advisers, who typically build relationships with hundreds of clients over decades, face an overwhelming amount of information about markets and the lives of their wealthy wards. New York-based Morgan Stanley is seeking to give humans an edge by prodding them to engage at just the right moments.
The move comes at a time when the financial industry is moving increasingly toward automation overall, with artificial intelligence beginning to replace human talent at some insurers and hedge funds. Back in February, Son reported that JPMorgan Chase’s machine learning software had taken over tasks that used to consume 360,000 hours of lawyers’ and loan officers’ time each year, and in January, GeekWire’s Dan Richman took a look at a project by the “robo-advisor” company LendingRobot billed as a fully automated hedge fund, using machine learning and blockchain technology to invest without any human intervention.
The “fiduciary rule,” which the US Department of Labor announced this week will go into effect on June 9 as scheduled, will require financial advisors to act in their clients’ best interests when advising them about retirement—or in other words, it will forbid them from steering clients toward products that would maximize the advisor’s own commission or fee. Financial firms and business groups like the US Chamber of Commerce oppose the rule, which they say will hurt growth, lead to a deluge of frivolous lawsuits, and limit the options of employee investors.
Another reason financial institutions may dislike the impending rule, Bloomberg’s Hugh Son explains, is that it is forcing them to change their recruiting practices. Morgan Stanley, Merrill Lynch, and UBS have all said they are cutting back on the use of signing bonuses based on the revenue brokers generated in their previous jobs, which the government had warned them might go against the rule:
Last year, the Department of Labor briefed banks that the industry’s typical signing bonuses could run afoul of the agency’s incoming fiduciary rule. Upon joining a new firm, star brokers were often granted awards of more than three times the revenue they generated in the past year, with the bonus structured as a loan that’s forgiven as the employee stayed with the company and hit targets.
The briefing prodded firms including Morgan Stanley and Merrill Lynch to restructure their enticements, and now brokerages are moving to make more permanent changes.
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In an op-ed published at the Wall Street Journal on Monday, US Secretary of Labor Alexander Acosta announced that the “fiduciary rule,” a Labor Department regulation introduced by the Obama administration that requires financial advisors to act in their clients’ best interests when advising them about retirement, will go into effect on June 9 without further delay. The department will continue to seek public comment on the rule and how it might be revised, Acosta writes, and is broadly committed to President Donald Trump’s agenda of rolling back Obama-era regulations, but has “found no principled legal basis” under the Administrative Procedure Act to delay the rule any further (It was originally scheduled to go into effect in April, but was delayed 60 days to give the department time to complete a review ordered by Trump in February).
The Labor Department followed up on Monday evening with a series of FAQ explaining how financial institutions and advisors must comply and when: While the rule goes into effect next month, a transition period is provided for, and certain provisions will not become applicable until January 1, 2018. According to the FAQs, that date may change:
The Department is also aware that after the Fiduciary Rule was issued firms have begun to develop new business models and innovative market products. Many of the most promising responses to the Fiduciary Rule, such as brokers’ possible use of “clean shares” in the mutual fund market to mitigate conflicts of interest, are likely to take significantly more time to implement than what the Department envisioned when it set January 1, 2018, as the applicability date for full compliance with all of the exemptions’ conditions. By granting additional time, and perhaps creating a new streamlined exemption based upon the use of clean shares and other innovations for example, it may be possible for firms to create a compliance mechanism that is less costly and more effective than the sorts of interim measures that they might otherwise use.
Despite Acosta’s insistence that the rule still remains subject to revision, Politico hears from lobbyists for the financial services industry that they are disappointed in the department’s decision not to delay it further. Advocates of the rule, meanwhile, are celebrating, Employee Benefit News reports:
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The “fiduciary rule”, an Obama-era regulation that would require financial advisors to act in their clients’ best interests when recommending retirement savings plans, has been targeted for removal or reform by US President Donald Trump’s administration since February, when Trump ordered the Department of Labor to review the rule and possibly revise or remove it. The deadline for compliance with the regulation was originally April 10, but the department proposed delaying it by 60 days last month to give it time to complete the review. On Wednesday, the department confirmed that the new compliance deadline will be June 9, according to CNBC:
Legal experts said the Labor Department’s announcement still keeps intact the core of the regulation. Among those are requirements that advisors charge no more than reasonable compensation, avoid misleading statements and act in your best interest when recommending investments. “The DOL is effectively regulating IRAs,” said Marcia Wagner, managing director at The Wagner Law Group in Boston. “This is the DOL saying that this isn’t up for debate.” …
Other portions of the regulation concerning specific written disclosures advisors and financial services firms must make to clients won’t take effect until Jan. 1, 2018, according to the DOL’s post on the Federal Register.