Opponents of a pending Labor Department rule that would increase standards for investment advice for retirement plans have insisted that the agency conduct a cost-benefit analysis before proposing a regulation.
The difficulty that the Labor Department faces in satisfying critics was evident at an event in Washington last Tuesday.
“From a cost-benefit [standpoint], you can't justify” the regulation, which would expand the definition of “fiduciary” to encompass more retirement plan advisers, said Sen. Saxby Chambliss, R-Ga.
Skeptics contend that the initial rule that the Labor Department proposed in 2010 would subject brokers making individual retirement account sales to a fiduciary duty under federal retirement law for the first time, potentially pushing them out of the IRA market.
The Labor Department withdrew the proposed rule last September and said that it would re-propose it this year, along with a cost-benefit analysis.
The DOL argues that the Employee Retirement Income Security Act of 1974 must be updated to better protect workers from conflicted investment advice. At the time ERISA was enacted, most companies provided defined-benefit pensions. But workers now must build their own nest eggs through 401(k) plans and IRAs.
The rule has drawn fierce opposition on Capitol Hill, which Mr. Chambliss reflected during his comments at the National Journal Policy Summit in Washington.
The DOL is writing a regulation that targets a nonexistent problem, he said.
“The customer was not complaining,” Mr. Chambliss said.
“There are regulations that go too far and end up costing the client money,” he said. “Those are the kinds of regulations we need to make sure are not imposed on the financial community.”
DEPRIVING MIDDLE CLASS?
A wide range of industry representatives have criticized the original Labor Department proposal.
They have said that it would lead brokers to leave the IRA business, depriving smaller investors of advice.
“The cost of providing financial help is high and getting higher,” said Peter Schneider, executive vice president and general counsel at Primerica, which sponsored the National Journal event. “That's why firms shy away from going into middle-income households.”
The notion that a flawed implementation of fiduciary duty would hurt middle-class investors is a point that the National Association of Insurance and Financial Advisors, as well as other industry groups, brokers and insurers are trying to drive home with lawmakers.
“The rule should follow the cost-benefit analysis — and not have the rule first,” Mr. Schneider said. “It should be thoughtfully done.”
Fiduciary advocates argue that biased advice lowers returns for investors across asset levels. They are pushing the Securities and Exchange Commission to promulgate a rule that would impose a universal fiduciary duty on all retail investment advice, forcing brokers to meet a higher bar than the suitability standard that governs them.
The SEC intends to conduct a cost-benefit evaluation of fiduciary duty before promulgating a rule. It isn't clear when it will send out a data request.
Regardless of what the SEC's and Labor Department's market impact evaluations show, it will be difficult to change minds.
mschoeff@investmentnews.com
