It’s far from over …
The Department of Labor (DOL)’s fiduciary rule—requiring advisors overseeing retirement accounts to act under a fiduciary standard to put their clients’ interests ahead of their own—is scheduled to take effect in April 2017, but that doesn’t mean the fight is over. It’s an election year—and the Republicans and the Democrats have very different views of the new rule.
Republican opposition
Although Donald Trump has not taken a position, Republicans in Congress have made their opposition to the rule very clear. Not long after it was established, Congress introduced H.R. 88, a joint resolution, “disapproving the rule submitted by the Department of Labor relating to the definition of the term ‘Fiduciary.’
The resolution passed the House in late April and the Senate in late May, before being vetoed by the President. The House could not muster enough votes to overcome a veto, so the rule remains.[1]
Republicans oppose the rule because it imposes a significant financial burden on companies and increases regulation. The American Action Forum (AAF) reported the fiduciary rule is one of the most expensive ever established. The DOL itself estimated the rule would cost companies about $31.5 billion over the next decade while requiring nearly 57,000 hours for paperwork.[2]
The AAF suggests that 401(k) account holders may pay as much $4.2 billion in unnecessary fees if they do not receive timely and sound advice about IRA rollovers.[3]
“Unfortunately, these consumers who have changed jobs or retire are hesitant or even unable to roll over their 401(k)s into an IRA because of the Department of Labor’s new fiduciary rule which subjects broker-dealers and IRA managers to heightened disclosure, reporting, and compliance burdens that will significantly increase their costs of doing business. The rule will also make it so that retirement savers with lower account balances will have a hard time even finding somewhere to house their accounts, because those smaller accounts will no longer be profitable to their investment advisers.”3
Democrat support
The Democratic presidential nominee published a fact sheet titled, Hillary Clinton: Wall Street Should Work for Main Street, establishing her support for the DOL fiduciary rule, as well as outlining other steps she would take as President. The fact sheet stated Clinton’s plan was, among other things, to:
- Defend Dodd-Frank against Republican attacks—so that we don’t go back to the days when Wall Street could write its own rules.
- Tackle dangerous risks in the financial system—reducing both present and future threats to our financial and economic stability.
- Hold both individuals and corporations accountable when they break the law or put the system at risk—protecting the integrity of our markets and upholding basic fairness.
- Ensure that the financial sector serves the interests of investors and consumers, not just itself—so that everyday Americans can save and invest with confidence that they’re getting a fair shake.”4
Despite differences in their support for the fiduciary rule, both parties are concerned the rule will make it more difficult for small-balance investors to get the help they need, as many financial firms have suggested. In addition, both parties recognize the DOL’s fiduciary rule may be too complicated and both parties are concerned about lawsuits that have been and will be filed.
The bigger picture
While the fiduciary rule has raised a ruckus, it may be just the beginning of a bigger battle over retirement. While members of the Republican party want to make sure 401(k) plans remain a tax-advantaged retirement option for American workers, House Democrats recently sponsored a bill, called the American Savings Account Act, which would establish a universal retirement savings program. GovTrack.us offered a summary:
“This bill amends the Employee Retirement Income Security Act of 1974 (ERISA) to establish a new retirement option for all employees and self-employed individuals to be known as the American Savings Account Fund. This fund operates in a manner similar to the Thrift Savings Fund, which is available to federal employees.”[4]
Many financial services firms have begun to take steps to comply with the DOL’s fiduciary rule; however, there is much more that remains to be done. Most firms are working diligently to absorb the details of the DOL fiduciary rule and taking the steps required to be in compliance with the regulations. They’ll have to remain flexible as more changes may be introduced before April 2017, when the new rule becomes effective.
[1] https://www.congress.gov [2] https://www.americanactionforum.org/research/fiduciary-rule-final-now/ [3] https://www.americanactionforum.org/infographic/cost-not-rolling-401ks-iras-fiduciary-rule/ [4] https://www.govtrack.us/congress/bills/114/s2472/summary
Before retirement, Terry Dunne was the senior vice president and managing director of Retirement Services at Millennium Trust Company, LLC. Mr. Dunne has over 40 years of consulting experience in the financial services industry. He has written extensively on retirement planning, industry trends, technology, and legislation. Millennium Trust performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.
The individuals making the decisions on this topic have not mathematically calculated how expensive this will be for “Every Individual” that HAS to save for their “own” retirement. Unlike these decision makers who do not have to save for their own retirement because they automatically get an extremely nice “Government” retirement, which they did not have to save for themselves.
I have been saving for years now only to have the government tell me how I have to invest “MY” money “I” saved – They did not save it for me. This is just another tactic of their dictatorship. Plus, these decision makers evidently don’t know how to invest. They should learn from Warren Buffett and live in the real world like the rest of us.
The DOL Rule is simply a payback from the Democrats to the trial lawyer lobby. Those of us in the financial services industry simply represent the next new victim for rapacious attorneys who are more than willing to share their ill-gotten gains with Demcratic candidates.
Obviously, the two above poster have a stake in not be a fiduciary.