Jane Bryant Quinn, the well-known financial columnist and commentator, applauds the U.S. Department of Labor's recently announced fiduciary standard. "I'm very pleased this has passed," she says in a phone interview.
One of her biggest concerns has been people who are leaving 401(k) plans, typically when they exit jobs. "They have targets on their backs because that's where the money is," she says.
They've been investing for years in a protected environment, she explains, with a limited number of choices, such as target date funds or index funds. "They're not terribly sophisticated financially and have no idea what's out there in the Wild West of financial investments," Quinn says. "That's why these regulations were written—because these people are entering a world they don't know anything about, and they often wind up in the hands of people who are charging them very high fees."
She says she's "delighted" that fixed-indexed annuities were included in the fiduciary standard. "I am very hopeful that these regs will help people make better informed choices," she says.
To Quinn, the impact of the new standard will depend partly on how fees are disclosed. Fee disclosure is a good first step, but Quinn asks: “Do you have to go to a website? Will it be clear? Will people be able to understand what the fees are when they receive a proposal from a broker?”
If the fee disclosure is fair, she says, there will likely be movement toward lower-fee products. But that doesn't necessarily mean a price war. "You can just put clients into low-cost things that exist already," Quinn notes. "There are plenty of low-cost items around that just aren't used when brokers are run by commissions."
Whether we see a reduction in commission-based products will depend largely on the leadership of the brokerage firms themselves, she posits. "They can force the brokers into continuing to sell high-cost proprietary products as a 'best interest,' because if they tell them 'do this or lose your job,' that's what the brokers are going to do.”
Quinn maintains a modicum of caution. "A lot is going to depend on how some of these guys who have taken advantage of people are going to handle these best interest contracts (BIC)," she says. "Are they going to decide that a costly fixed-indexed annuity is still in their client's best interest? We'll have to find out just exactly how the brokerage industry responds [to the fiduciary standard], and especially how it responds to the best interest contract—whether it gets away with calling fixed-indexed annuities a 'best interest.'"
Another fear Quinn has about the BICs is that people might sign them unwittingly, without really understanding what's in them. Moreover, the contracts could create a false sense of security. "There is plenty of research showing that disclosure can actually help bad actors, because some people tend to believe that if things are disclosed, the person disclosing them must be honest," she says. "Which of course is a ridiculous conclusion, but there is a lot of research showing that."
On the other hand, Quinn is optimistic that the regs could actually make a big difference in people's lives. "A fiduciary standard has the potential of being very helpful, especially for people coming out of 401(k)s," she says. "I think many in the brokerage industry will respond to this in the spirit that it's intended. They will look for the lower cost choices and act as true fiduciaries. Trying to get around this rule over time would be kind of crazy."