President Obama is pushing legislation that addresses practices within the investment industry that pose a conflict of interest. It is disappointing to see First District Congressman Richard Neal in opposition.
The White House wants to address the issue of brokers steering people with individual retirement accounts (IRAs) into complicated investment programs with high fees and low returns so they can earn hefty commissions. The administration asserts that this practice is costing Americans $17 billion annually because the advice they are receiving is tainted by a conflict caused by the broker's desire to make a large profit.
The president has brought forth a reform plan requiring brokers to act in the "best interest" of clients and disclose all commissions they receive for steering clients into particular investments. Representative Neal, a Springfield Democrat, has responded with legislation co-sponsored by Illinois Republican Peter Roskam, that would among other things eliminate the requirement for a written contract between the broker and a client and would require the Republican-controlled House to approve the new regulations. The latter would guarantee the failure of the White House initiative because House Republicans in particular refuse to pass any Obama initiatives out of spite, which surely Representative Neal knows.
Representative Neal told The Boston Globe that the administration's legislation, to be enforced by the Department of Labor, is cumbersome and complicated and will dissuade Americans from saving for retirement and seeking retirement advice. This is also what the investment industry, which backs the Neal-Roskam bill, is claiming. Americans, however, know they need to save for retirement and won't stop doing so, and the investment companies aren't going to walk away from a billion dollar market. The industry can live with legislation that only requires it to be more open about its practices so clients can determine if they are potentially being fleeced.
Among those opposing the president's legislation is Springfield-based Mass Mutual Life Insurance, which manages $155 billion in retirement accounts. Representative Neal denied to The Globe that campaign contributions affect the legislation he files, but Mass Mutual tops his donor list and the top 10 contains several life insurance and financial services companies.
Representative Neal has also co-sponsored legislation creating an "innovation box" to ostensibly reward companies for pioneering research. Massachusetts Senator Elizabeth Warren, whose bona fides on financial issues couldn't be much stronger, criticizes the bill for lacking enforcement measures preventing companies from claiming the innovation tax credit to increase their profit margins without actually proving they earned it. The senator also supports the Obama administration investment reform measures without the watering down of the Neal-Roskam bill.
This legislation would also allow companies to pay lower taxes on their "intellectual property." This would enable corporations like General Electric, a prominent Neal donor and a company that employs a variety of schemes to avoid paying taxes, to further lower its tax rate and artificially increase its profit margin.
Representative Neal, who is the senior member of the Massachusetts congressional delegation, understandably prides himself for working across party lines. However, bipartisanship should not be in the service of Republican-style bills catering to the specific interests of wealthy companies.
The congressman also touts his long experience in Washington on financial matters, and there is no doubting his expertise. However, that expertise is better employed in protecting the financial interests of his constituents, as is clearly the goal of Senator Warren, than in benefiting giant corporations that have already proven efficient at raking in huge profits and/or cynically reducing their tax obligations.