Posted on 05/31/2017 6:25:46 PM PDT by markomalley
One of the Obama administration's final major labor regulations could deprive millions of retirement savers investment advice from financial professionals, according to a new report.
The Department of Labor proposed the Fiduciary Rule in April 2015, which would allow regulators to oversee the relationship between retirement account advisors and their clients to ensure that the former were completing trades for the sole interest of their clients. The rule was approved in 2016 under the leadership of Labor Secretary Tom Perez, now the head of the Democratic Party.
"In 2016, the Department took a historic step to protect the savings of America's workers—the conflict of interest rule makes sure that professionals providing retirement investment advice have to give advice that’s in the best interest of their clients and not divert their clients' hard-earned income into their own pockets through hidden fees and conflicted advice," Perez said in an exit memo published on the White House website.
The Chamber of Commerce's Center for Capital Markets Competitiveness said in a new report that the regulation will have unintended consequences that could drive up costs for workers saving for retirement and prevent small investors from receiving financial advice from professionals. The regulation would give financial firms incentives to move away from commission-based management to fee-based management, which could hinder those with smaller accounts from gaining access to retirement advice because of the "substantial threat of unwarranted litigation."
The report found that "up to 7 million individual retirement account (IRA) owners could lose access to investment advice altogether" and that 92 percent of investment firms "could limit or restrict investment products for their customers, which could ultimately effect some 11 million households." The report is based off of a comprehensive collection of surveys and data gathered by independent and industry groups, as well as public comments submitted to the Labor Department after it introduced the rule. It concludes that the department "underestimated the negative effects of the rule, particularly in reducing access to advice for small retirement savers and small businesses."
"The theoretical academic exercises underlying the Rule are giving way to hard evidence, and the evidence is coming in showing that the rule is harming American investors. This new data, based on actual experience, demonstrates that the DOL's original predictions were wrong," the report says. "The DOL has overstepped both its jurisdiction and its expertise."
President Trump ordered the department to review the rule in February as part of his deregulation agenda. Opponents of the rule hoped that Labor Secretary Alexander Acosta would delay its implementation. Rep. Phil Roe, a member of the House Committee on Education and the Workforce, and 123 other congressmen sent a letter to Labor Secretary Alexander Acosta on May 2 urging him to "delay this rule in its entirety."
Acosta indicated in a Wall Street Journal op-ed that the department would move forward with the rule, while leaving open the possibility of amending it. He said that he would follow through on Trump's call for a review of the regulation and seek additional public comment and input from the industry, as well as financial watchdogs.
"Respect for the rule of law leads us to the conclusion that this date cannot be postponed," he wrote. "Trust in Americans' ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule."
Congressional Republicans have been critical of Acosta's decision to move forward with the rule. Rep. Virginia Foxx (R., NC), chairwoman of the House Committee on Education and the Workforce, said that delaying implementation "does not provide the relief workers and families urgently need from a deeply flawed rule."
"If this is the path the department is determined to take, then it must quickly develop a responsible solution for dealing with a regulatory scheme that will make it harder and more costly for low- and middle-income families to save for retirement," Foxx said in a statement. "The last administration inflicted a lot of pain on workers, families, and small businesses, and it is going to take bold leadership to undo the damage that's been done and pursue a better course."
The department will begin implementing the rule on June 9.
Hahaha...”I’m from the government. I’m here to help you.”
In my opinion, this rule should be an option for seniors who require monitoring of their holdings. Too many con artists acting as investment professionals and advisors themselves have taken cruel advantage of the elderly, wiping them out of their life long savings. I hurts me to see it. This could be an opt in or opt out depending on the retiree’s abilities.
As I get older, I find myself getting more cynical and less trusting of anything and anybody.
While I don't question that some elderly get gullible, for the life of me, I don't understand why that is the case...one would think that with years and years of experience in real life, they'd recognize that everybody (including their own children) is out to screw them.
What’s wrong with a divorced , balanced fund from Fidelity, Schwab to Vanguard? No need for a private. You’ll be broke b4 finding out what fiduciary means.
Where in the Constitution is the federal government authorized to provide such guidance?
If you have a small account you really don’t need a professional’services advice...
“retirement account advisers”
this is one regulation that desperately needs to kept on the books: 99.9999999999% of all so-called “retirement account advisers” are nothing but scumbag con artist lying pieces of shit.
I can’t count the number of panicked widows I’ve personally tried to steer away from these sharks, only to see them “invest” their entire life savings in nearly worthless variable annuities that the con artist promised would return 10% a year, even though the actual prospectus makes no guarantees at all and discloses the fact that the con artists gets a 20% “commission” off the top and subsequently trying to get out early pretty much destroys whatever is left.
I truly hate those people who prey on the old and clueless. And the worst part is nearly everyone of them pretends like, and emphasizes, what good Christians they are, and that they are really doing this as the Lord’s work, not because they really make any money at it.
Catnip, I agree with your sentiments. However, as a benefits lawyer in practice for thirty years, this “rule” has been the bane of my existence for the past two years.
As crafted, it is a sop to the trial lawyers. Why? Because the rule imposes fiduciary liability on anyone who renders “investment advice” to a retirement investor. So far, so good, but here’s the hook: the determination of what constitutes “investment advice” is a subjective determination given entirely to the retirement investor. No matter WHAT the financial advisor tells the retirement investor, if the retirement investor simply feels and believes that the comments were “investment advice” case closed. The advisor is a fiduciary with personal liability that pierces the corporate veil and exposes every dime of his personal life to liability and judgment.
Think about it - If an advisor merely says “good morning” to a retirement investor, the retirement investor can lawyer up and say that he sincerely and truly believed that “good morning” was code for “place my entire retirement nest egg into beanie babies” and the advisor can be sued, and held personally liable for damages and fines, for rendering such faulty advice. Albeit, that is a far-fetched example, but you can see the trial lawyers drooling over this “rule”.
Precisely
Deal with the established good guys and they will insure a diversified portfolio of a few mutual funds.
I despise rip-off artists.
Stealing from old people is unthinkable to me.
I despise rip-off artists.
Stealing from old people is unthinkable to me.
“Albeit, that is a far-fetched example, but you can see the trial lawyers drooling over this “rule””
Then make the rule better, more specific, more defined, but don’t get rid of it.
For example, apply the rule only to “investment advisers” who offer products for sale and/or personally directly financially benefit from the sale of said products.
“Then make the rule better, more specific, more defined, but don’t get rid of it.”
Again, we are on the same page. I do believe the new Secretary Of Labor will do just that. In the interim, I’m advising my advisor clients to have investors sign statements acknowledging that they have received investment education only and no recommendations.
“Again, we are on the same page.”
yeah, i figured we were :)
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