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Fiduciary Rule Facing Familiar Bipartisan Concerns

This is starting to sound familiar. The Department of Labor has again released a regulatory proposal that will make it harder for families to save for retirement. That proposal is again drawing bipartisan concern. And Democrats are again echoing Republicans in pointing out the consequences the proposal could have for low- and middle-income families and small business owners. As Senate Democrats recently explained in numerous letters to the department, under the proposal:
Basic financial advice would be prohibited.
  • Transitioning to a new employer or retirement is an important milestone for any individual, and one overlooked by the Department’s proposed rule … Investors looking for assistance with their transition are essentially cut off from advice from an investment professional under this proposed framework. (Letter by Sen. Claire McCaskill (D-MO), 08/05/2015)
  • Unfortunately, the rule in its current form could limit educational materials to abstract items and conversations that will do little to assist the average investor. (Letter led by Sen. Jon Tester (D-MT), 08/06/2015)
  • The new rule also restricts the identification of specific products or investments available within retirement plans or IRAs in asset allocation models. This limitation would mean that financial professionals could, for example, tell individuals about different categories of investments, and the advantages of diversification, but could not name specific examples in any category or it would no longer be investment education … We find that to be a troubling result … (Letter led by Sen. Ron Wyden (D-OR), 08/07/2015)

Small business owners would be denied assistance.

  • A key aspect of retirement savings comes from small businesses being able to provide options to their employees. We are concerned that the seller’s exemption is limited to an extent that would prevent financial professionals from being able to engage small businesses without triggering fiduciary duties. (Letter led by Sen. Jon Tester (D-MT), 08/06/2015)
  • The small business owners will be left to figure out retirement platforms for their business without any help at all, or will have to hire an independent third party to do the work for him, neither of which are ideal options. (Letter by Sen. Claire McCaskill (D-MO), 08/05/2015)

Low- and middle-income families will lose access to advice or pay higher fees.

  • … [W]e are concerned that the rule in its current form could stifle access to meaningful investment advice for millions of Main Street investors. (Letter led by Sen. Jon Tester (D-MT), 08/06/2015)
  • As drafted, the proposal risks forcing more investors away from the current brokerage model … Investment advisory models are more expensive, and quite possibly unaffordable for holders of small accounts. Given a limited choice of only the more expensive advisory account model, more individuals may completely lose access to in-person investment advice. (Letter by Sen. Claire McCaskill (D-MO), 08/05/2015)

Not only do Republicans and Democrats see eye to eye on the flaws in the department’s proposal, they also share broad agreement on the best approach for working families. As one letter by Senate Democrats rightly notes:

… [W]e strongly believe that workers and investors deserve advice that is in their best interest. That is a goal we all share … We also believe that it is important that any guidance enhance and not diminish savings opportunities for small businesses and moderate income families.

Unfortunately, the Department of Labor has taken a different approach, one that will make it harder for workers to save for retirement. Sounds like it would be in everybody’s best interest if the department started over. Again.

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