“A fundamental shift in Wall Street culture” is what the Department of Labor is aiming for with the “fiduciary rule.” That’s what DOL Deputy Assistant Secretary Tim Hauser said in an interview with FinancialPlanning.com during recent hearings on the proposed regulation that has been called “Obamacare for Your IRA.”
But the vast majority of comments submitted on the rule—most of which came far away from Wall Street—called on the DOL to change its own culture of paternalism, an analysis by the Competitive Enterprise Institute shows. Many of these comments took aim at the DOL’s explicit contention in the rule, which I have written about here and elsewhere, that individuals can’t “prudently manage retirement assets on their own,” and that they “generally cannot distinguish … good investment results from bad.”
Individual savers, however, begged to differ on their ability to manage their own retirement accounts and expressed outrage at the regulation’s limiting of their ability to seek guidance from brokers and pursue individualized investment strategies. A retiree named Don Schwartz pleaded with the DOL: “Leave my retirement alone. I need no help from the Federal government with my 401K.” After explaining that he was “doing just fine thanks to the company I retired from and my own personal decisions I made along the way,” Schwartz told the DOL loudly and clearly, “Quit helping me, I’m smarter than you think I am.”
Under the new rule, those currently saving for their retirement will likely not have the options savvy retirees like Schwartz had. Financial professionals who provide even one-time guidance or appraisal of investments could find themselves classified as “fiduciaries,” even if the clients they serve make their own investment decisions for their 401(k)s and individual retirement accounts (IRAs). These professionals will face liability and government penalties (and their customers may face taxes on newly “prohibited transactions”) if they do not adhere to what the DOL determines to be the “best interest” of an investor.
This means today’s savers could lose everything from low-cost brokerage services to the ability to put alternative assets like gold, silver, and real estate into their IRAs. Robert Litan of the Brookings Institution and Hal Singer of the Progressive Policy Institute conclude in the Wall Street Journal that the reduction in personalized investment guidance the rule would engender could cost savers $80 billion over the next decade.
CEI’s breakdown of the comments show massive opposition to the rules, particularly among the middle-class savers DOL and its supporters say they are trying to help. Here are the findings of the analysis of more than 900 comments filed to DOL on the rule. The analysis was conducted by CEI Research Associates Chris Kuiper and John McDonald, as well as myself.
Despite so many individual savers, Main Street financial professionals, and even some congressional Democrats expressing strong concerns about the regulation, DOL is by all indications proceeding full speed ahead and if not stopped may even put out a final rule as early as the end of this year. In a conference call this week, Rep. Ann Wagner (R-Mo.) said that the fiduciary rule is the Obama administration’s biggest priority “other than the Iran deal or climate change.”
That’s why it’s imperative that Congress stick to its guns and stand firm on the funding freezes for this rule currently in the House and Senate appropriations bills. It should also pass Wagner’s bipartisan Retail Investor Protection Act—H.R. 1090—that would stop the DOL from issuing a fiduciary rule until the Securities and Exchange Commission deals with the issue first, and would require both agencies to more strongly consider impact on investor choice when proposing a regulation. And the army of savers that weighed in during the comment period needs to keep sounding the alarm to both Congress and the DOL!
Here are the comments that CEI and FreedomWorks Foundation filed to the DOL on the rule.
This article first appeared on the Competitive Enterprise Institute’s blog.