The Data Is In: The Fiduciary Rule will Harm Small Retirement Savers

Thursday, May 25, 2017 - 4:45pm

Executive Summary

In April 2016, the Department of Labor (DOL or Department) finalized its controversial and long-awaited “Fiduciary Rule,” a sweeping expansion of government authority that fundamentally disrupts the way in which Americans save for retirement. Throughout the rulemaking process, the U.S. Chamber warned that the Fiduciary Rule was built upon a mountain of flawed data and analysis, and would harm the very people it was purported to protect by raising costs and limiting investment options.

Unfortunately for the millions of Americans who rely on the private savings market for their retirement, our concerns are coming true. The theoretical academic exercises underlying the Rule are giving way to hard evidence, and the evidence is coming in showing that the rule is harming American investors. This new data, based on actual experience, demonstrates that the DOL’s original predictions were wrong. This data indicates that the DOL underestimated the negative effects of the rule, particularly in reducing access to advice for small retirement savers and small businesses.

This report is a compilation of survey statistics and other data that was submitted by various organizations in response to a DOL recent comment period, in response to the February 3, 2017 Presidential Executive Order, on the Fiduciary Rule. The Executive Order directed the Department to review the impact of the Fiduciary Rule on retirement savers’ access to investment products and services. We believe this information should be helpful to the Administration, Congress, and policymakers as they explore ways to mitigate the negative ramifications of the Fiduciary Rule and promote a robust retirement savings market.

Some examples from the report include:

  • 92% of firms surveyed say that the Rule could limit or restrict investment products for their customers, which could ultimately effect some 11 million households
  • Up to 7 million individual retirement account (IRA) owners could lose access to investment advice altogether
  • A survey of insurance service providers shows 70% already have or are considering exiting the market for small balance IRAs and small plans, and half are preparing to raise minimum account requirements for IRAs
  • A survey of advisors finds 71% will stop providing advice to at least some of their current small accounts due to the risk and increased costs of the rule
  • Other surveys found that 35% of advisors will stop serving accounts under $25,000, and 25% will raise their client minimum account thresholds
  • One large mutual fund provider reports that its number of orphaned accounts nearly doubled in the first three months of 2017, and that the average account balance in these orphan accounts is just $21,000. Further, it projects that ultimately 16% of the accounts it services will be orphaned this year because of the Fiduciary Rule

We believe this report will help show that the Rule was a policy mistake and that the DOL has overstepped both its jurisdiction and its expertise. The Chamber looks forward to working with the DOL, Congress, and the Securities and Exchange Commission (SEC) to develop an alternative and permanent solution that will restore the ability of Americans to save for a dignified retirement.

Check out the report’s accompanying infographic here.