SIFMA Comments Support Commission Accounts

Eight comment letters to the DOL address SIFMA’s concerns about the fiduciary redefinition, including what it sees as an unfair position on commission-based accounts.

In hopes of getting a chance to testify at the DOL’s August hearing, The Securities Industry and Financial Markets Association (SIFMA) has sent eight comment letters to the Department of Labor (DOL) about the proposed fiduciary redefinition. Among the association’s concerns are the potential effect of the rule on investors with commission-based accounts.

The group said it is deeply concerned that the DOL has proposed a rule that would harm U.S. individual investors because of what it calls the DOL’s complete recasting of the ERISA definition of who acts as a fiduciary. Two of the letters comment on the rule itself; each prohibited transaction exemption is addressed separately. SIFMA’s concerns are similar to the ones it stressed in 2011, when the last fiduciary rule was proposed.

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Among SIFMA’s concerns are that the prohibited transaction exemptions in the proposed rule will limit access to financial guidance, reduce choice and ultimately raise the cost of saving for retirement. 

According to Tom Price, managing director, operations and technology at SIFMA, the organization factored account-level data and actual trading data of investors with individual retirement accounts (IRAs) into its opinions. The data—from a study by NERA Economic Consulting—is up to date, Price said on a media call to discuss the letters, not from a decade ago or more.

Among their findings: the cost of commission-based accounts would be higher for many individuals if they had to convert, Price said, noting that currently investors can choose, and do in fact select the model that’s appropriate for them.

NEXT: Investors left in no man’s land?

“Many accounts might not even meet the minimum balance required to have an account,” Price said, since thresholds can be between $25,000 and $50,000. If the economics don’t work to move these investors into a wrap account, some investors could be left on their own, unable to access a commission-based account but below the level needed for an advisory account.

The performance of commission-based accounts is a high-level point, Price said, and NERA found that commission-based accounts do not underperform fee-based accounts. “What is the problem that you’re solving here? People are making these choices ably already,” he said. According to NERA’s study, in 2014, the median trade frequency in commission-based accounts was just 6 trades versus 57 trades in fee-based accounts, with larger accounts trading more frequently than smaller ones.

“We agree with the DOL that more can be done to help Americans save for retirement and that there should be a best interests standard in place; however, we believe DOL is the wrong regulator to be in the lead here,  and the rule as written completely misses the mark,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO.  “SIFMA’s comment letters reflect our ongoing concerns that the DOL’s proposal would cause harm – particularly to low and middle-income retirement savers – by limiting investors’ access to choice and guidance, while raising the cost of saving.”

A link to all SIMFA’s comment letters is on their site.

International Equity Tops Fund Flows in June

International equity offerings attracted nearly $25 million for the month.

Net inflows to stock and bond mutual funds and exchange-traded products (ETPs) totaled $8.5 billion in June.

Long-term mutual funds saw net outflows of $5.4 billion in aggregate during the month, while ETPs experienced roughly $14 billion of net deposits, according to Strategic Insight, an Asset International company.

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Investor demand in June was led by international equity offerings, which attracted nearly $25 billion of net inflows in total across funds and ETPs (including $8.7 billion to actively managed strategies). Longer-term, the $170 billion deposited to international equity funds and ETPs over the first half of 2015 represented the largest net inflows of any fund type by a wide margin, Strategic Insight said.

Within the U.S. equity space, health (including biotech) strategies once again led net inflows to actively managed funds during June, garnering $1.3 billion. Over the first half of 2015, such funds have attracted nearly $10 billion of net deposits (the largest of any active U.S. Equity objective)—spurred by the category’s 35% weighted-average total returns during the one-year period ended in June.

Bond funds saw $10.2 billion of net outflows in aggregate during June, with taxable bond offerings accounting for $8.6 billion of net redemptions (including roughly $10 billion from active strategies). Corporate high yield funds, in particular, experienced $7.7 billion of net outflows during the month. 

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