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Good intentions do not guarantee good regulations. Unintended consequences often eclipse the improvements a rule aims to make, ultimately causing more harm than good. Such is the case with the Department of Labor’s (DOL’s) proposed fiduciary duty rule, which purports to protect consumers but could actually limit their access to retirement services or lock them out of the retirement market altogether.
The DOL has proposed a rule to expand the definition of a “fiduciary”—someone who has a legal obligation to act exclusively on behalf of a client—so that it applies to anyone dispensing financial and retirement advice. Why? Regulators have decided that only fiduciaries will act in the best interests of their clients. They apparently believe that other advisors—such as brokers, who are already heavily regulated—always give conflicted advice to investors. Therefore, brokers servicing individual retirement accounts should also be held to the fiduciary standard, creating new costs and regulatory hurdles for providing retirement advice.
According to a new study commissioned by the U.S. Chamber of Commerce, small businesses and their employees will bear the brunt of the proposed rule’s consequences.
Today, 99% of employers in the United States are small businesses, responsible for 63% of new private sector jobs. To compete with larger companies and attract employees, small businesses need affordable retirement savings plans. Many use SEP and SIMPLE IRA plans because they provide a simple, cost-effective way for small businesses to contribute to their employees’ retirement. As of the end of 2014, these small business retirement plans held approximately $472 billion in retirement assets for more than 9 million households.
The proposed rule would threaten the availability of these kinds of affordable retirement options. It would create higher costs that would be passed on to small businesses, potentially limiting their ability to offer retirement plans. And some advisors may not be able to justify the expense or absorb the risk of changing business models and fee structures for small-scale plans, so they could cease to provide those services.
Strengthening transparency and accountability for Americans’ retirement savings is a noble goal that the U.S. Chamber supports. But the proposed DOL rule is the wrong way to achieve it. The proposal would make it harder for financial advisors to offer good counsel, and it would discourage small businesses from doing right by their employees and helping put them on the path to a secure future.
We must not limit consumers’ choice or access in the name of their own protection. That’s throwing out the baby with the bathwater. Instead, let’s focus on how to better educate, inform, and serve them.