The Left's War Against Stock Brokers

The Boston Globe reports:

The sting operation had the trappings of a Wall Street thriller, except that it was run by a team of Harvard and MIT economists. In an audacious experiment, the professors dispatched a squad of undercover operatives across Cambridge and Boston to pose as middle-class investors and ask retail brokers for investment advice.

The results were revealing. Just 21 out of 284 brokers contacted by the phony clients recommended investing in index funds, which mirror broader market performance and carry the smallest fees.

Nearly half the brokers, meanwhile, steered clients toward actively managed mutual funds. Those funds — which sometimes beat the market but most often don’t — carry higher fees that enrich brokers and fund managers but, critics say, stunt the growth of middle-class nest eggs.

“You get a worse deal,’’ said Antoinette Schoar, an MIT finance professor who helped lead the experiment, which received little attention when it was published in 2012.

The type of routine sales practices highlighted in the Massachusetts study, and a recent follow-up in New York involving 650 undercover visits, are driving an impassioned debate in Washington about whether small investors need stronger protections from an industry aggressively competing for a slice of their retirement savings. Advocates want strict rules forcing brokers to put their clients’ interests first.

The battle pits an array of consumer watchdog groups, AARP, and labor unions including the AFL-CIO against a slew of big, nationally known companies, with Fidelity Investments, which is headquartered in Boston, and MassMutual Financial Group, based in Springfield, prominent among them.

Investment firms have spent millions lobbying the administration and lawmakers, including $450,000 on a secretive effort in which the participants’ identities are kept under wraps. The industry says that excessive restrictions on brokers would make it economically unfeasible to offer financial advice at the lower end of the market. After winning delay after delay from regulators, they have fresh political developments to cheer.

No word yet on whether Congress should write regulations demanding MIT to tell applicants that there are cheaper places to go than MIT. Since more lying and fraud comes from government , how can anyone take government regulations seriously ?