Sean Hackbarth Sean Hackbarth
Senior Editor, Digital Content, U.S. Chamber of Commerce


September 15, 2017


When a Senator not only calls you out at a committee hearing but riles up her base on Twitter, you know you’ve hit a nerve.

Sen. Elizabeth Warren (D-MA) claimed, "The fiduciary rule is working for consumers, start-ups and big investment companies,” and aimed her fire at the U.S. Chamber.

The attack stems from the Labor Department's Fiduciary Rule that expanded the definition of a fiduciary investment advisor. The first phase of the Obama-era regulation went into effect in June. The second phase is set to go into effect on January 1, 2018.

She has an odd definition of what it means to be “working.” What’s really happening is retirement savers are stuck holding the bag with fewer investment options, cutbacks in investment advice, and higher costs for saving, recent surveys find.

Fewer Options

For starters, the rule has forced financial firms to change what investment options they offer their customers.

A U.S. Chamber survey of financial companies serving 26 million investor accounts found unanimity that the fiduciary rule will be bad for small retirement savers.

More than half, 13.4 million accounts, have already lost access to investment products. One company said, “We no longer allow IRA clients to buy individual stocks, including individual [Exchange Traded Funds], inside of a brokerage account.”

Contrast this with comments made by Representative Phil Roe (R-TN) at a U.S. Chamber event earlier this month, who explained that some of the best advice he ever received was to buy Intel and Apple stock in the 1980s. Is Senator Warren OK with cutting off opportunities for American households to build sustainable wealth?

Another survey, conducted by Deloitte for the Securities Industry and Financial Markets Association (SIFMA), found nearly all (95%) financial advisors queried “made changes to the products available to retirement investors, including limiting or eliminating asset class” [emphasis mine].

Senator Warren, who made her name writing about middle-class finances, should explain how fewer investment options are better for retirement savers.

Less Investment Advice

Let's go next to investment advice. Many savers don't have access to the same levels of advice they had prior to the Fiduciary Rule.

Fifty-three percent of advisors reduced or eliminated advice to retirement savers, the Deloitte survey found. Savers who were affected moved to fee-based accounts (that offer investment advice) or self-directed accounts (that don’t offer advice), or they had their account minimums increased in order to get investment advice. What's more, nearly one-fifth (19%) of advisors eliminated or offered limited rollover advice for those who got a new job and needed help rolling over their 401(k).

The Labor Department allows some accounts to be grandfathered, permitting firms to offer a limited amount of advice. But this has led to confusion among financial firms and their customers, and the key word here is “limited.” “The grandfathering provision allows us to do certain things up until the point where new advice is provided. But once new advice is provided, we would lose the grandfathering,” said one company to the U.S. Chamber.

The result, the U.S. Chamber found, is 4.4 million investor accounts were “moved into a different service not requested by the investor” and less access to investment advice.

Can Senator Warren explain how having less access to (or paying more for the same amount of) investment advice is good for savers?

Higher Fees

Lastly, there are fees. Many investment advisors are adapting to this Washington-imposed one-size-fits-all approach by moving clients from commissions-based to fee-based accounts. For many retirement savers with low balances, this means higher costs.

“This is because it’s uneconomic to serve those customers,” a company noted in the U.S. Chamber report. “So they will either have to pay a higher fixed fee or a higher percentage than they are paying today.”

Over time, higher fees can have a big effect on retirement nest eggs. “We feel like even if an advisor takes on a small account, it is most likely that the annual advisory fee is going to be higher just based on the industry standards. That’s going to further negatively impact the client's account over time,” another company said.

Perhaps Senator Warren can show us how higher costs for millions of savers is a sign the rule is "working."

The Wall Street Journal editorial page nailed it on the head last month. By reducing investment options, limiting or eliminated investment advice, and increasing costs, the Fiduciary Rule “is harming the very people the rule is meant to help.”

Instead of making attention-grabbing attacks on those on the opposite side of this policy dispute, Senator Warren should look at the facts on the ground and help work to make it easier for Americans to save for their retirement.

About the authors

Sean Hackbarth

Sean Hackbarth

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.

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