Members of the Congressional Black, Hispanic and Pacific Asian caucuses have asked the Department of Labor to not harm their constituents in revising the definition of a fiduciary.
In a letter addressed to Acting DOL Secretary Seth Harris, 32 members of Congress requested that any new regulations expand the availability of financial advice rather than restrict it.
“We are concerned that a new, more restrictive definition of fiduciary would add yet another barrier to accessing qualified retirement planning services,” the members of Congress said in the letter dated June 14.
“Studies have shown that even savers with small IRA and 401(k) balances benefit greatly from the ability to sit with a trusted advisor to help plan for their future,” the letter continued. “We are concerned that the re-proposal [of the definition of fiduciary] will disadvantage those it aims to help.”
The regulation the members of Congress are concerned about would change the definition of a fiduciary under the Employee Retirement Income Security Act (Erisa). The definition change is designed to provide consumers with additional protections.
An earlier, new definition was proposed that would have prohibited commission-based advisors from advising on IRAs and 401(k) plans because the Department of Labor sees commissions as generating a conflict of interest, says Christopher J. Paulitz, senior vice president, membership and marketing, for the Financial Services Institute. That rule was withdrawn after FSI, members of Congress and the public objected and a new rule is expected now in September.
“Obviously the members of Congress found the issue important enough to weigh in before the rule comes out,” Paulitz says.
There are 19 million IRA holders and the average IRA is worth $27,000. Most of the smaller ones are now handled by commission-based financial advisors, which is the only way it is financially feasible for the advisor, Paulitz says.
If commissions on these types of accounts are prohibited and advisors are restricted to charging fees, many financial advisors will be put out of business and millions of IRA holders will be priced out of the market for financial advice, Paulitz says. This will disproportionately hurt minorities and women who hold the majority of small IRA accounts, he says.
“Money for many of these people is hard earned and they need help planning for the future and retirement,” Paulitz says.