By Multiple Authors
February 9, 2016 at 5:00 am ET
The following column was written by: Kenneth E. Bentsen, Jr., President & CEO, SIFMA; Dale E. Brown, President & CEO, Financial Services Institute, Inc.; Kevin Mayeux, CEO, National Association of Insurance & Financial Advisors; Rob Nichols, President and CEO, American Bankers Association; Dirk A. Kempthorne, President & CEO, American Council of Life Insurers; Tim Pawlenty, President & CEO, Financial Services Roundtable; David Stertzer, CEO, The Association for Advanced Life Underwriting; Paul Schott Stevens, President & CEO, Investment Company Institute; Cathy Weatherford, President & CEO, Insured Retirement Institute.
A sweeping change that will hurt Americans’ ability to plan and save for retirement is on the agenda for the U.S. Department of Labor. It’s called the “fiduciary proposal,” a regulation that attempts to ensure Americans receive retirement security advice that is in their best interests.
On close inspection, however, the regulation will inhibit Americans from receiving retirement security advice they need.
We agree with the Department’s goal of ensuring Americans receive financial advice that is in their best interest. Who doesn’t? But the proposal will restrict the ability of millions of savers from accessing many products and services that would boost their retirement security. Instead of ensuring advice that is in consumers’ best interests, the proposal will likely result in higher costs, fewer options, or no advice at all, especially for lower and middle-income Americans.
Retirement savers seeking help from a trusted financial advisor may suddenly find it unavailable if the regulation moves forward as written. That’s because the help savers need may not align with how Washington, D.C. feels this “trusted” relationship should be. In the real world, that means many savers will be priced out of the market, or they’ll be pushed by the regulation toward “robo-advisors” offering automated, pre-programmed assistance. Plus, one financial services industry study shows higher fees and mistakes caused by loss of advice could cost retirement savers under the new regulation more than $100 billion over the next 10 years.
The proposal disregards legal protections already in place that could serve consumers well if properly enforced. It attacks the integrity of thousands of financial professionals who work hard every day to help millions of Americans plan for a secure future. Proper enforcement, plus the red tape created by the proposal, helps explain why the department received 3,530 comment letters calling for substantive changes to its proposal. Given the complexity of the proposed regulation, the radical change to the retirement planning landscape it will cause, and its many harmful and unintended consequences, the department should be focused on getting this right, not just getting it done.
Think tanks, regulators and others have expressed reservations to the department about its proposal. So has Congress.
A majority of both Democrats and Republicans have already expressed their concern to the Department of Labor. But more congressional involvement and action is needed to ensure retirement savers are not harmed by this regulation. It is Congress’s responsibility to act on national issues directly affecting the welfare of millions of Americans.
As Senators Rob Portman (R-OH) and Ben Cardin (D-MD) said in a letter to Department of Labor Secretary Thomas Perez, “Congress has a clear role to play in making certain that any changes – whether regulatory or legislative – achieve the right policy outcome and ensure consistency across the retirement landscape.”
Fortunately, members of Congress, both Republicans and Democrats, are taking action.
Reps. Peter Roskam (R-IL), Richie Neal (D-MA), Phil Roe (R-TN) and John Larson (D-CT), along with Reps. Buddy Carter (R-GA), David Scott (D-GA), Tom Reed (R-NY), and Michelle Lujan Grisham (D-NM), introduced legislation in December to reform the same provisions of federal pension law – the Employee Retirement Income Security Act – that is the subject of the Labor Department’s regulation.
Their bipartisan, consensus-driven bills are consistent with the department’s goal of making sure that the retirement security advice workers and retirees receive is in their best interest. The legislation enshrines a “best interest” standard permanently into the law and does not rely on the standard being conveyed via contract on a client-by-client basis
The bipartisan bills would strengthen consumer protections for retirement savers while also maintaining access to quality financial advice for small businesses and low- and middle-income Americans. They will preserve investor choice and consumer access to all investment services and products while preserving small business owners’ access to financial advice needed to establish and maintain retirement plans – and help workers save for retirements.
The bills would also require advisors to communicate key information – including full and fair disclosure on compensation and all investment fees to ensure investors are well-informed. And, consistent with the department’s goals, the bills punish advisors who fail to act in their client’s best interest by holding them liable for damages and imposing financial penalties.
Retirement policy does not have to be a divisive issue. With so many policymakers from both sides of the aisle agreeing that professional financial advisors should act in the best interest of clients, another polarizing Washington, D.C. regulation forced on America is counterproductive and unnecessary.
With Americans’ retirement security at stake, it is imperative that more members of Congress sign onto these bills – and Congress act on them – to ensure Americans’ best interests are served.