Hard working Americans deserve the opportunity to secure a sound financial future. Because no two retirement savers or investors are alike, the key to providing that future lays in ensuring a robust and diverse choice of retirement savings products. It’s choice that lets savers design a financial future that meets their unique circumstances and aspirations.
At a time when our capital markets have become increasingly democratized, individual savers should be enjoying increased access to advice and services. Instead, because of the Department of Labor’s (DOL) Fiduciary Rule, investors are being tied down with limited financial advice and services to choose from as financial experts struggle to make sense of the rule and adapt to its demands.
When the DOL announced the final rule in April 2016, it had to guess about the rule’s effects. Today, instead of guessing, we have actual facts. A recent study conducted by the U.S. Chamber found that 13.4 million investment accounts face reduced choice of retirement savings products in the wake of this new regulation. Tens of millions of Americans face the negative effects of reduced investment choice as individual accounts support the dreams and livelihoods of their families and households. This explains why 100% of financial industry participants surveyed said small retirement savers will be worse off under the Fiduciary Rule.
Even just partially implemented (full implementation could go into effect on Jan. 1, 2018), the rule’s consequences are already bad for individual investors, especially members of the middle-class. More and more individuals and families have to choose between increasingly impersonal investment options that may not best serve their particular circumstances. The rule is having the effect of forcing American savers into a straightjacket of restricted investment choice.
Another recent study, conducted by Deloitte for Securities Industry and Financial Markets Association, found that 95% of financial institutions surveyed are changing the products available to their clients as a result of the rule. The vast majority of those changes (86%) involve the availability of mutual funds. This unfortunate regulatory induced shift in the market was echoed in the Chamber’s own research. One respondent described the situation:
We no longer allow IRA clients to buy individual stocks, including individual ETFs, inside of a brokerage account. We've limited our mutual fund shelf from probably a few thousand funds to under 1,000 funds.
Truly consumer-focused regulation should empower investors and savers to seek the financial products, services, and strategies that best serve their individual needs. Policies that limit choice don’t protect investors, rather they leave them with fewer options and opportunities to successfully save for their future needs.
The growth in consumer choice from new technology and low cost advice has the potential to give every American an equal opportunity to receive personalized investment guidance. The Fiduciary Rule places unfair mandates on financial advisors and brokers, many of whom have served generations of local communities, and doesn’t fight corruption on Wall Street or curtail bad behavior from a few bad actors. Instead, the rule disincentivizes investment professionals to assist more clients and offer creative solutions necessary to meet the diverse retirement needs of small business owners, employees, and retirement savers.
It is good DOL proposed a delay for the effective date of the remaining parts of the rule, but unless changes are made investors will find it much more difficult to plan for their retirement.
The Securities and Exchange Commission (SEC) has also opened a comment period to solicit ways in which it should address standards of conduct for financial advisers. This is good as the SEC is the agency with primary expertise on the subject and could provide the best path forward to breaking small investors out of the straightjacket DOL has put them in.