[EDITOR's NOTE: This article depicts an imaginary trial in which the fiduciary standards that underpin the fiduciary rule are applied to evaluate that rule itself.]

3:03 a.m.
The Opening Statement
Thank you, your Honor. With your permission, I will make an opening statement.

Your Honor, I stand before you in a dreamy state for the purpose of proving that the fiduciary rule fails to advance the best interests of retirement savers. Specifically, I charge the fiduciary rule with eight counts of crimes against the fiduciary rule. Yes, your Honor, the fiduciary rule has indeed violated itself. My testimony will demonstrate how these breaches of fiduciary duty occurred. I ask the Court to carefully weigh my testimony. If the Court finds that the evidence I present is persuasive, I suggest that you order an immediate rescission of the fiduciary rule as the just and fair remedy.

Your Honor, I ask you to participate in a thought experiment. Imagine that you are a sixty-six-year-old retiree named Tom. You are one of the millions of diligent Americans who saved money with the objective of maintaining a retirement lifestyle that is somewhat close to your pre-retirement lifestyle.

You are not a financial expert. But you have seen recent news reports on television that describe an effort by the Department of Labor to protect retirement savers by eliminating “junk fees,” and by clamping down on insurance agents and financial advisors who target “millions of seniors,” in order to sell “bad annuities.” May I suggest, your Honor, that your logical reaction to these reports would be to regard the new “fiduciary rule” as a positive development.

But is this an accurate conclusion, your Honor. Please consider these questions.

• How should you think about a regulation that ostensibly exists to enhance retirement security, but in fact serves to diminish retirement security?

• How should you think about a regulation that will increase the unemployment rate and cause economic dislocation for thousands of American families?

• How should you think about a regulation that discriminates against the most vulnerable in our society?

• How should you think about a regulation that is so biased in its perspective, it betrays a complete and utter lack of wisdom about the financial needs of most of our nation’s retirees?

• How should you think about a regulation that unfairly targets the only industry that is able to provide our fellow Americans a monthly paycheck that is guaranteed to continue for life?

Your honor, the fiduciary rule, now called the Retirement Security Rule, will cause incalculable damage to the retirement security of millions of Americans. If left in-force, the Retirement Security Rule will harm the most financially vulnerable in our society, cause an appreciable increase in unemployment, and subject millions to potentially devastating financial risks that they could otherwise avoid. As an example of public policy, I cannot think of any legislation or regulation that has been enacted that so completely fails to achieve its stated objectives.

Your Honor, I am the first to recognize that these are significant charges I levy against the Retirement Security Rule. But I will prove to you that each of the assertions I make is correct, and each of the Charges is warranted. I will demonstrate that the Retirement Security Rule deserves this Court to order its immediate recission. Therefore, I hereby charge the fiduciary rule with eight violations of itself:









Your Honor, Americans deserve better than what the Department of Labor has handed them. The DOL has misused its power, abused its power, and projected its power in ways that, if left unchecked, will be shown by history to be the worst retirement related regulation ever enacted.

Your Honor, the Department of Labor has promulgated a rule that is a cure for a problem that does not exist. The rule is so horribly constructed, and compliance with it is so onerous and complex, and its effects so destructive to retirees’ financial security, that it deserves not to endure for even one minute longer.

Thank you, your honor. With your permission, I will now present the evidence that led to my charges against the fiduciary rule.

The Presentation Of Evidence

Your Honor, The Department of Labor published a document entitled Retirement Security Rule Definition of an Investment Advice Fiduciary.

This document is long, comprising 153,943 words. Your Honor, the document is notable for something that tells us all we need to know. It is notable for what is missing: not a single time1. in those 153,943 words is found the two most important in creating retirement security: “retirement income.”

“Retirement income” appears several times, but only in referring to ERISA- the Employee Retirement Security Act.

Your Honor don’t take it from me. Take it from the individual who is the world’s foremost expert on personal retirement security, the man whom Nobel laureate, Paul Samuelson, called the Isaac Newton of personal finance. It was Nobel laureate Robert C Merton who stated that in retirement it is your income not your wealth that creates your standard of living.

How is a regulation that ostensibly exists to benefit retirement investors- after all, its very name is retirement security- how is such a regulation legitimate, if in the document that explains it, all 476 pages of it, not once is found the term retirement income?

Your Honor not only does the Retirement Security Rule fail to understand what constitutes retirement security, it equally fails at understanding that not all retirees are the same, including retirees with identical amounts of savings.

Here, the Retirement Security Rule exposes the fact that it embraces the perspective of investment advisors, individuals who often do not specialize in retirement income planning, but rather in the accumulation of assets. The plain fact is, your Honor, retirement income planning, or as it is otherwise known, income distribution planning, requires different skills and insights than those used to accumulate assets.

Among its many failings, one outsized deficiency of the Retirement Security Rule is its failure to address the needs of America’s Constrained Investors. Who are these constrained investors? Your Honor, they are most people who have saved retirement. They are most “boomer” women. They are the majority of retirees from underserved communities.

As I am sure you know, your Honor, in our country only a tiny minority of individuals have a surplus of cash relative to the amount of savings they require to support living with dignity in retirement.

Your Honor, it is important to understand that the traditional investor segmentation framework categorizes investors according to how much money they have to invest. This results in investor segments such as mass market, high net worth, ultra-high net worth, etc. The financial services industry then serves up various products and services to these investors based upon in which segment they are found.

This traditional segmentation framework works fine when people are accumulating assets. Once they get to retirement, however, the application of this framework is a costly error because it makes no room for the issues that matter most to most retirees. Like long-term financial security.

The Constrained Investor framework is a more meaningful way to assess and best serve the needs of retirement investors. More than focusing on the amount of money the investor has available to invest, the Constrained Investor framework examines the critical relationship between how much money the investor has, and the amount of income that must be created from the investor’s savings to sustain a minimally acceptable lifestyle.

Most investors have just enough, or not quite enough, to generate the income that they need. Therefore, Constrained Investors require an investment strategy that prioritizes the management of risks that threaten to reduce or wipe out their capacity to generate income.

Tragically, your Honor, this important distinction is completely ignored in the Retirement Security Rule. This failing alone, in my judgment, justifies its rescission.

Using the Constrained Investor Framework, all retirees will fit into one of three segments:

• Underfunded investors,

• Overfunded investors, and

• Constrained investors.

Your Honor, allow me to define these for you.

Underfunded investors have accumulated little or no savings, they will rely primarily on Social Security for their retirement income.

Overfunded investors are a lucky minority of people who have accumulated more liquid assets than they need to produce the income they require in retirement. They can use any type of investing strategy for retirement income because they have a large cushion of liquid assets to protect them against investing mistakes.

Constrained investors reach retirement with savings. However, the amount they saved is not high in relation to the level of monthly income that they require to support a minimally acceptable lifestyle. This group of Americans represents a huge segment, if not the majority, of the population.

Constrained Investors have no cushion to guard against investing mistakes. Therefore, they require an investing strategy that promotes consistent investing, the avoidance of emotionally based investing decisions, and protection against risks that can reduce or wipe out their capacity to generate income from savings.

All Constrained Investors share an absolute reliance upon their savings to produce the income that they must have each month. Therefore, to best serve Constrained Investors, to truly function as a fiduciary to Constrained Investors, financial professionals must first address the management of risks, including longevity risk and timing risk.

In the same way that we cannot build a house without first building a strong foundation, we cannot build an effective income plan for Constrained Investors without first building a risk-mitigating foundation.

Your Honor, among the risks that Constrained Investors must be protected against are timing risk, and longevity risk. This means that at a minimum, Constrained Investors must have the protection of an annuity or a pension that provides a lifetime guaranteed income.

To be clear, your Honor, annuities are not required to protect against timing risk. That said, the combination of a SPIA and MYGA covering the first 10 years of retirement is a cost-effective way to mitigate timing risk while providing monthly income that is guaranteed.

Your Honor, it is literally impossible to best serve the interests of Constrained Investors without an insurance agent recommending an annuity. This is a sacred responsibility owed to Constrained Investors that the retirement security rule completely ignores.

For this reason, the fiduciary row violates the fiduciary rule.

Your Honor, just as in medicine where physicians specialize in particular areas, so do financial professionals specialize in particular areas. For example, some financial advisors specialize in the accumulation of assets. This is the province of investment advisors. In general, these practitioners are quite skilled, and they do an excellent job of helping their clients accumulate money. They hold the appropriate licenses required to provide these investment management services.

Another group of financial professionals are life insurance agents. Life insurance agents do not provide investment management services. Rather, they specialize in liability minimalization using protection vehicles including life insurance and annuities. Life insurance agents hold the appropriate licenses to provide these products to their customers.

A third group of investment professionals are financial professionals who specialize in retirement income distribution planning. “Distribution” refers to the spending down of assets once an investor reaches retirement age. Distribution planning requires specialized skills, and a knowledge of both asset accumulation and liability minimization. Income planning specialists have an insurance license, and most also have a license to provide investments.

Remembering that the overriding emphasis of the Retirement Security Act is to serve the best interests of retirement investors, we can once again look to the Department of Labor’s own publication to reveal that the Retirement Security Rule fails to address the mitigation of risks that can reduce or wipe out the investor’s capacity to generate income from savings.

Your Honor, not a single time does the Retirement Security Rule address longevity risk. Not a single time does it address timing risk, or as it is otherwise known, sequence of returns risk. This is a failing so extreme, and so inevitably destructive to America’s retirement security, that it is plain from reading the Department of Labor’s own words that it has exclusively embraced the perspective of investment advisors in constructing the Retirement Security Rule. Therefore, it is manifestly shown that the Retirement Security Rule lacks the balance that is a requisite of proper retirement income planning. This demonstrates conclusively that the Retirement Security Rule fails millions of Americans who are approaching retirement or who have already retired.

For this reason, the fiduciary rule violates the fiduciary rule.

Your honor, I ask you to consider how the average American would interpret a high profile and highly publicized Federal regulation, which was introduced by no less than the President of the United States, and that is named Retirement Security Rule. I submit to you, your Honor, that the American people interpret this rule as representing the best interests of their retirement security.

Your Honor, for reasons I have already documented, the Retirement Security Rule is misnamed, misleading, and damaging. If left to remain in-force, it is more likely to cause many Americans to lose their retirement security, not have it strengthened.

Your Honor, Americans are busy with their day to day lives. They do not have the knowledge that even many financial professionals lack in terms of knowing how to arrange their money once they have retired. Therefore, a name means a lot. The American people are trusting, in general, and they will be misled by the Retirement Security Rule into a future of retirement insecurity.

For this reason, the fiduciary rule violates the fiduciary rule.

Your honor, once again, it is clear from reading the Department of Labor’s own publications, that the life insurance industry is being targeted in a way that is unfair, overly burdensome, and punitive. The Department of Labor is clearly averse to two facets of the insurance industry. That is, commissions paid to agents, and fixed index annuities.

I submit, your Honor, that this inappropriate targeting of a vital industry will do incalculable damage to Americans’ retirement security. Once again, we see here the perspective of the investment management industry favored by a Department of Labor, a department that obviously looks askance at insurance. This again betrays a lack of balance, and a lack of a meaningful understanding of what constitutes retirement security. And it demonstrates a devastating failure of the Department of Labor.

One cannot escape the conclusion when reading the Department of Labor’s various publications that the department believes that insurance agents are overcompensated, their commissions are an inferior compensation framework, and that fixed indexed annuities are not in the consumer’s best interests. Each of these are manifestly untrue. Your Honor, it is time for a reality check.

In 2023, the largest share of annuities sold by insurance agents was the multi-year guarantee annuity, or MYGA. Sales totaled $153 billion. On these sales, insurance agents were paid an average commission of 1.9%.

The next largest share of sales was in fixed index annuities, totaling $99 billion. Insurance agents were paid an average commission of 6.5% on these sales.

At $1.9 billion, fixed annuities represented the smallest share of sales, with agents paid an average commission of 5.6%. Your Honor, agents receive one-time commissions to compensate them for one-time transactions.

What I am sharing with you, your Honor, is reality, the truth, not an inaccurate perception. Insurance agents are not overpaid. Again, please understand that these are one-time payments to agents to compensate them for a one-time transaction.

Consider the example of an insurance agent receiving a 6.5% commission on a $100,000 IRA rollover sale that is funded by a 10-year fixed index annuity. The agent would be entitled to a one-time commission equal to $6,500. Now, your Honor, if the annuity purchaser holds the annuity until the end of its ten-year term, it is the insurance company that exclusively finances the payment of the agent’s commission. It is not paid by the annuity owner.

Your honor, please allow me to contrast this to the fee-based advisor compensation model that the Department of Labor clearly favors. I will demonstrate that the fee-based model is far more expensive for retirement investors to bear.

Over the same 10-year period, an investment advisor managing the same $100,000 in an account that grows by 6% annually, would be paid $13,932, all of which is borne by the retirement investor in the form of small, systematic transfers of some of the investor’s wealth to the investment advisor. These systematic transfers of the retirement investor’s wealth take the form of a direct cost debited from the investor’s investment account. 

Said differently, the retirement investor in this example saved about $14,000 by choosing to work with an insurance agent.

But that is not the whole story. When working with a fee-based investment advisor, the genuine cost borne by the retirement investor is likely to be higher than $14,000. Consider that once the investment fee has been debited from the investor’s account, any investment gains that would have been generated on those monies can never be realized, potentially making the investor’s effective cost significantly more than $14,000.

Let me be clear. By describing this example, I do not mean to diminish the importance of investment advisors or impugn advisors who are compensated by AUM fees. Nor do I mean to say that choosing to work with an insurance agent is inherently superior due to cost effectiveness. Defining either one as superior is simply a false comparison, just as it would be a fallacy to declare that your car’s transmission is superior to its steering wheel. The fact is, for your car to run, both are unquestionably vital. For retirees to enjoy a secure retirement, they need both as well.

To target the life insurance industry and life insurance agents, the Department of Labor has reinterpreted its five-part test that dates to 1975. Before the reinterpretation, insurance agents were deemed to be providing one time advice in the context of IRA rollover sales. That system has worked perfectly well. Nonetheless, in 2020, when the Department of Labor made its reinterpretation, essentially classifying all life insurance agents as ERISA investment advise fiduciaries.  

Your Honor, through its Retirement Security Rule, the Department of Labor is effectively reengineering the entire business of annuities and annuity distribution. It has created a compliance regime for insurance agents and insurers to follow, that is so complicated, so burdensome, and so unnecessary, that on its face it proves that it is unfairly targeting the insurance industry, and thereby severely damaging the retirement security of millions of Americans.

For this reason, the fiduciary rule violates the fiduciary rule.

Your Honor, the retirement Security Rule discriminates against women. This discrimination is especially acute in the case of “boomer” generation women. Please allow me to describe some important issues relative to women and retirement security. Research reveals that:

• Women live longer in retirement than than men.

• Women face higher costs for health care.

• Women enter retirement with smaller amounts of savings.

• Women are disproportionately tasked with caregiver responsibilities.

• Women are paid less than men for equal work.

• 80% of women die single.

Your Honor, the challenges of women’s retirement are far more complex than men’s. The Department of Labor’s Retirement Security Rule recognizes none of this.

Your Honor, these facts have been quantified in multiple research studies from credible organizations including McKinsey & Co., BCG, Merrill Lynch, UBS, and BlackRock, among others. Research from these organizations demonstrates that historically, the investment management industry has poorly served women. It has failed to respond to their needs.

Male financial advisors tend to direct their attention at the male spouse. They disregard the female spouse, who is left to feel devalued and unheard. There are good reasons why seven out of ten male financial advisors are fired by widows within one year of their husband’s passing.

Research also indicates that men and women have a fundamentally different outlooks about money. Almost all men based their investment decisions on an investment’s track record for growth and yield. Men typically enjoy picking stocks. In general, women do not share these investing priorities.

Women are more concerned about developing authentic relationships with a financial advisor, being truly listened to, and having their values understood. There are three words that summarize the major priorities of “boomer” women investors. These are goals, risk reduction and confidence.

Research from BlackRock indicates that 63% of boomer-age women worry about outliving their incomes. If the Retirement Security Rule were good public policy, it would be encouraging, rather than inhibiting Americans’ ability to access the lifetime guaranteed income that only annuities provide. The Retirement Security Rule plainly fails to address the best interests of women investors.

For this reason, the fiduciary rule violates the fiduciary rule.

Your honor, On April 6, 2022, as part of Advisor Perspectives Market Outlook Summit, I delivered a presentation to a nationwide audience of financial advisors entitled, Demographics, Gender, and Wealth: Profiting from The Retirement Income Revolution. As part of my presentation, I revealed research I had done examining the websites of fifty investment registered investment advisory firms. I surveyed small medium and large firms, examining the firms’ website content, specifically to search for the term, “retirement income.” In not even one of the fifty websites examined did I find a mention of retirement income. This is unsurprising. Investment advisors concentrate on accumulating assets. Investment advisors also seek out wealthier individuals to become their clients.

Your Honor, consider the example of the famous investment adviser, Ken Fisher. I am sure you have seen his commercials on television and in print. Fisher’s firm seeks investors who have a minimum of $500,000 to invest. This is typically the way it goes in the investment management industry.

Your Honor, who serves Americans who have only a modest amount of savings? Or Americans who have yet to accumulate savings but have the capacity to save a modest amount each month? Historically, your Honor, this has been the province of Insurance professionals. Insurance professionals have served those Americans and have provided countless financial benefits to them, including using annuities to systematically build wealth, and protecting a family’s financial security through life insurance.

Does the Department of Labor believe that the investment advisor community is suddenly going to shift its focus and seek out low-income Americans to be their clients? I think we both know the answer to that question, your Honor. But the effect of what the Department of Labor has done with its Retirement Security Rule is to essentially disenfranchise lower income Americans, including many Black Americans, many Hispanic and Latino Americans, and many others from underserved communities. It has disenfranchised them from the professional, one- on-one guidance they desperately need. This is deeply disturbing, and deeply discriminatory.

For this reason, the fiduciary rule violates the fiduciary rule.

Your Honor, the duty of Care requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person familiar with such matters would use in similar circumstances. No individual who is prudent and skilled in retirement security issues would agree that the Retirement Security Rule acts with care, skill, prudence, and diligence in its approach toward retirement investors. The Retirement Security Rule’s failure to recognize the nuances of retirement income distribution planning, its failure to acknowledge the planning needs of America’s Constrained Investors, its failure to address the discrete needs of women investors, its failure to promote greater utilization of lifetime guaranteed income, and it’s targeting of the life insurance industry demonstrate its failure to meet the Care standard.

For this reason, the fiduciary rule violates the fiduciary rule.

Your honor, perhaps the greatest failure of the Retirement Security Rule is its failure to adhere to the loyalty standard it mandates for investment advice fiduciaries. The duty of loyalty is a fundamental obligation placed upon fiduciaries. For reasons I have explained in the previous charges, in a constellation of ways the Retirement Security Rule fails to serve the best interest of millions of retirement investors.

For this reason, the fiduciary violates the fiduciary rule.

Closing Statement
Your honor, while in my dreamy state, I appreciate the opportunity to present my testimony against the Department of Labor’s Retirement Security Rule. I hope that I have persuaded you that it is clear and obvious that the fiduciary rule violates itself and thus deserves immediate rescission.

I ask you, your Honor, what is the purpose of public policy if not to serve the public good? Shouldn’t that standard evaluate Government’s actions?

In the case of the Retirement Security Rule, the Department of Labor’s misguided policies will cause disproportionate damage to both the most financially vulnerable in our society, as well as the oldest members of our society. I cannot stress enough that income is the key to retirement security, not savings.

Your Honor, with your indulgence, one more thought experiment.

Imagine that we could transport ourselves back to the year 2000. Imagine a retiree, a 65-year-old woman I’ll call Sally. Sally had been a good saver. She accumulated $1 million by the time she retired. Imagine also that Sally was averse to risk. Seeking to keep her money safe, she took her $1 million to her local bank where she purchased six-month CDs. Sally happily collected $5,800 in monthly interest income.

Now, your Honor, let us fast forward this story fourteen years. Something significant has taken place. By 2014, the dramatic decline in interest rates in the United States had reduced Sally’s monthly interest income to only $225.

And if we fast forward our story another seven years, to 2021, when interest rates on six-month CD’s plunged to 0.09%, Sally’s monthly interest income plummeted to just $75.

Your Honor, from 2000 to 2021, Sally’s income declined from $5,800 to $76, a reduction of 99%. But here is what is important to keep in mind. Sally’s savings, her $1 million, never changed.

You see, your Honor, retirement security is about income, not savings. This nuance completely escapes the Department of Labor as evidenced by how the Retirement Security Rule is written.

Investment advisors may hear this story and say, “Well, Sally should have put her money into stocks. Stocks. after all, went on an historic upward climb” To that I respond, your Honor, that is true. But it is also true that stocks are not for everyone. In fact, if instead of purchasing CDs in 2021 Sally had instead purchased stocks, she would have lost about 20 per cent in the following year.

The fact is some people just cannot stomach risk. But, your Honor, consider this. If instead of purchasing CDs, Sally had put her money in one or more fixed index annuities, she would have had the best of both worlds. Because Sally could have locked in a high level of monthly income and protected her principal. Moreover, she would have also could have seen her principal grow by perhaps fifty percent to two thirds of what the stock market grew to.

How is this not a good thing, your Honor? Is it, rather, too good a thing?

Your Honor, I wish the Retirement Security Rule included provisions that create incentives for people to purchase annuities that provide lifetime income, including fixed index annuities.

Your Honor, think of what this would mean. If more Americans were to turn their accumulated assets into lifelong income using annuities, it would reduce the burden on the Social Security system. This would strengthen Social Security, and perhaps avoid what we have been told to expect, an inevitable cutback in Social Security retirement benefits. This, Your Honor, would be productive public policy. It would serve the national interest. But this is not the approach that the Department of Labor has decided to take.

Rather than targeting the life insurance industry, I urge you to consider directing the Department of Labor to develop policies that strengthen the life insurance industry and its agents.

I remind you, your Honor, that life insurance agents are the only individuals who can bring annuities to the American people. Investment advisors do not possess the licensure to do this.

One productive policy change that the Department of Labor might consider is encouraging investment advisers to become licensed to offer insurance products, including annuities. This would surely connect more Americans with the benefits of guaranteed lifetime income.

Finally, your Honor, I would like to make additional comments about the fixed index annuity. For some reason, this valuable product has been the focus of the Department of Labor’s criticism. I do not understand this. As I have demonstrated, the average commission paid to agents selling fixed indexed annuities is 6.5%, a one-time payment for a one-time transaction.

What is lost in the Department of Labor’s position, in my view, is the importance of the benefits that fixed index annuities provide savers. At the heart of the fixed index annuity is a financial value proposition that I believe is unequaled in all of finance. That is, the opportunity for growth without the risk of loss. This is an incredibly important benefit for retirees. In my opinion, the criticisms levied against his index annuities are inaccurate, unjustified, and biased.

Your Honor, the Department of Labor's focus on costs really misses the point. It should be much more oriented toward protection, and income.

Your honor, in 1989 I vividly recall the Japanese stock market reaching its all-time high when the Nikkei 225 ascended it to the level of 39,300. Soon thereafter, Japanese stocks went on a period of decline that was so profoundly steep and long in duration that it took until March of 2024 for the Nikki 225 to reach the level it rose to in1989. I feel as though the Department of Labor puts too much emphasis on risk and not enough emphasis on protection. It is difficult to come to any other conclusion.

In conclusion, your Honor, let me state that the secret to developing true retirement security is balance. A balance between investments subject to risk, counterbalanced by investments that are safe, secure, and provide income that lasts for life.

Your Honor, for all the reasons I have stated, I ask that you direct the Department of Labor’s to rescind the Retirement Security Rule and order that it is replaced with a new rule that that will actually benefit Americans’ retirement security. I hope that this is the outcome I will discover when I awaken.

Thank you, your Honor, for the opportunity to present my testimony today.

Wealth2k founder, David Macchia, is an entrepreneur, author and public speaker whose work involves improving the processes used in retirement-income planning. Macchia is the developer of the Constrained Investor planning framework. He is developing income planning tools and processes for use by ERISA fiduciaries. He is also creating solutions to mitigate the threat to human financial advisors that is posed by emerging AI competitors.

Financial Advisor welcomes contributions from outside perspectives that may not reflect the views of the publications.