“Before it was vacated by the Fifth Circuit Court of Appeals, this fiduciary-only approach restricted access to professional guidance that retirement savers with low and moderate balances want and need. We have concerns that such consumer choice may be at risk again,” he added said.
The proposed rule would create a new exemption for investment advice fiduciaries as defined and policed under the Employee Retirement Income Security Act (ERISA).
The proposal offers a prohibited transaction class exemption for investment advice fiduciaries and is based on an existing temporary policy adopted after the 5th Circuit Court of Appeals vacated the DOL’s previous 2016 fiduciary rule package.
If finalized as proposed, the exemption would allow investment advice fiduciaries to give more choices for retirement clients using so-called “impartial conduct standards” which rise to “a best interest standard.” This is to say that they require reasonable compensation and that financial professionals make no materially misleading statements
Critics, however, told the Department of Labor during the hearing that the agency’s proposal broad exemptions from fiduciary responsibility will actually hurt retirement investors.
“I have represented many individuals who are participants in qualified retirement plans and IRAs and seen the harm done through the sale of high-cost investment products,” Ron Rhoades, an attorney and Director of Personal Financial Planning Program at Western Kentucky University. testified.
“The academic evidence on the impact of higher fees is conclusive. Higher-cost investments have lower returns, especially over the long term, all other things being equal. A mere 1% increase in fees over the course of a worker’s lifetime results in far less in a retiree’s nest egg – 20% less, or more (than 20%),” Rhoades said.
Barbara Roper, Director of Investor Protection for the Consumer Federation of America, said that as written the DOL rule does not impose any real fiduciary duty on advisors who work with retirement plan investors, who are not protected from costly, conflicted advice.
“The next time your friendly neighborhood retirement planner recommends an annuity, remember that isn’t advice, it is simple sales recommendations sold under a buyer-beware suitability standard,” she quipped.
Sen. Elizabeth Warren (D-MA) called for a hearing into the proposal on August 5, admonishing the agency for rushing the rule. “Financial advisers’ conflicts of interest cost families an estimated $17 billion every year. My office has led a series of investigations on conflicts of interest in the annuity industry that showed how providers offer agents lavish kickbacks that can compromise retirees’ savings,” Warren said.