Former Vice President, Center for Capital Markets Competitiveness
January 19, 2017
Before Russell Crowe rose to Oscar fame, he starred in the 1996 movie “Proof of Life” alongside Meg Ryan, whose character hired Crowe to help free her kidnapped husband. Against great odds, Crowe’s character heroically freed Meg Ryan’s movie husband from guerilla rebels in South America. The same heroism is needed today in Washington after eight years of overregulation that stifled the economy and growth. With the incoming Trump administration, there is hope that salvation is in the wings for overburdened workers and retirement savers.
Such heroism is called for now in Washington, D.C., as Americans saving for retirement need the Trump administration to start the process to repeal the Department of Labor’s (DOL) fiduciary rule. And at a minimum, the incoming administration needs to provide more time to regulated entities to stave off the draconian economic effects of the fiduciary rule.
The U.S. Chamber sued the Obama administration over this expansive regulation, but we can leave that for another time. Here is why the incoming administration needs to act quickly.
Last spring, the DOL finalized the fiduciary rule—one of the Department’s most complex and transformational rules it ever issued under ERISA, the Federal law governing retirement savings. This rule dramatically expanded the definition of a fiduciary investment advisor to private sector, employer-provided retirement plans—like 401(k)s and traditional pension plans—and to Individual Retirement Accounts (IRAs). Finalized only 8 months ago, the rule upends retirement advice on a titanic scale, impacting $16 trillion of Americans’ retirement savings.
The fiduciary rule should be rescinded completely—if not by the courts, then by the incoming Trump administration. But at a minimum, given the breadth, complexity and significance of its rule, there needs to be more time for covered entities to properly implement it. The applicability date—currently April 10, 2017—must be extended or else 150 million Americans saving for retirement will be hurt.
Here is a rundown of the top 5 reasons to delay:
12 Months Was Always Unrealistic—and Unusual
DOL provided only 12 months for entities to come into compliance with the fiduciary rule. For a rule of this complexity and scope, DOL often has provided longer implementation deadlines for much less significant rules, recognizing the compliance burden and the need to “get it right” to avoid harming workers and savers.
The Rule is Unusually Complex
The fiduciary rule is an extremely complex regulatory package that does not lend itself to a “one-size-fits-all” implementation. Announcements of intended changes by financial advisors so far have already shown very different approaches to compliance, including the elimination of certain types of advice and investment products and services.
DOL’s Essential Guidance was Delayed
DOL promised it would issue guidance to help explain the rule and to assist implementation, however that guidance was delayed until three-months before the compliance deadline. This guidance was needed at the beginning of the process when plans were being developed on how to conform business models with the rule..
Unrealistic Deadline Forces Focus on Minimum Compliance, Not Client Needs
Despite good faith efforts and literally hundreds of millions spent on compliance, financial advisors are struggling to meet the deadline to avoid potentially enormous litigation and tax consequences. A measured and considered compliance approach would maximize the services and value offered to clients.
Burden Falls on Workers and Savers
The unrealistic deadline ultimately hurts workers and individuals trying to save for retirement. A short deadline increases the expense of compliance, as a premium must be paid to achieve a lot of work in a short time. Further, a rush to compliance results in decisions to stop serving certain segments of the marketplace rather than to find new solutions matching the new regulatory circumstances. Small business retirement plans and small dollar savers are already seeing fewer options available to them.
The fiduciary rule is controversial, and the subject of litigation across the country. Many people want to see it repealed in its entirety—including the Chamber. But if it is going to stay on the books, then we should take the time to implement it properly. With over $16 trillion in retirement assets at issue, a delay is not only necessary, it’s the responsible thing to do. As we welcome the Trump Administration this week, we hope it can be the Russell Crowe workers and retirement savers need and quickly act to rescind or delay the rule.