Massachusetts is about to impose an elitist, fiduciary-only standard for those seeking financial services. Sadly, as the industry that helps small- and moderate-savers to plan their financial futures, we know this would hurt the very people it claims to protect.
I offered testimony at a related hearing today, as did Paul Quaranto of Boston Mutual Life Insurance Company.
Every day, 252 Massachusetts residents reach age 65. Many are concerned about how they’ll finance their way through retirement.
They’re seeking answers while the Commonwealth Secretary’s fiduciary proposal would curb their access to life insurance and annuities. It doesn’t add up. People of all incomes rely on life insurance. Annuities—the only products that guarantee lifetime income—are especially important to middle-income retirees. According to the research group LIMRA, the average income of an annuity owner is $64,000.
On the other hand, fiduciary advisers typically require a minimum retirement account balance of $100,000 to make managing someone’s money worth their while because they charge a percentage of the account to give advice. How many middle- and working-class savers will be able to pay the freight? The result is an advice gap for all but the wealthy.
For Main Street investors, one-time, commission-based services make more sense. Massachusetts’ proposal would effectively ban commission-based services, leaving these folks without any financial help or access to life insurers’ financial security solutions.
It doesn’t make sense to limit consumers’ retirement planning options.
Annuities are the only product in the marketplace that can truly supplement Social Security, ensuring retirees receive two sources of income they cannot outlive. And annuities are rarely on the menu of options from fee-based fiduciary advisers because they reduce the adviser’s compensation.
Evidence abounds that the Massachusetts plan is flawed. Similar proposals in the United Kingdom and by the U.S. Department of Labor in 2016 served to deny people access to financial guidance they want and need.
There’s a better way to enhance consumer protections. Massachusetts could follow the SEC’s Regulation Best Interest and the insurance regulators’ group, the NAIC. They’re both boosting market standards through a harmonized national approach, ensuring consumers throughout the country planning and saving for retirement are equally protected.