Saturday, January 24, 2015

Third Time a Charm for Fiduciary Reproposal?

So, advisors, how does it feel to be compared to a termite?

That’s right, a powerful coalition of retirement, union, and so-called consumer protection groups has launched a new attack on retirement plan advisors.

They’re doing so ahead of the president’s State of the Union address, and doing so now because he is expected to throw his support behind the Department of Labor’s fiduciary rule (re)proposal. Yes, that one.

Not that they yet know what they are supporting. In a new website launched to help promote their position, even they say “If the Department gets the rule right…”, apparently relying on the word of the Department of Labor that “…its goal is to make sure that all financial professionals have a legal obligation to put the interests of their customers first when they offer retirement advice.”

We don’t yet know what will be in this latest version. What we do know is that the last version raised significant concerns about its impact on the retirement plan marketplace, especially with regard to plans for small business, for IRAs, and for distributions from qualified retirement plans. We know that they saw fit, as part of an unprecedented power grab, to create a right to impose Labor Department oversight on non-ERISA individual retirement accounts that has not existed since the origins of those programs a generation ago. We know that they didn’t believe that a comprehensive and transparent disclosure of potential conflicts and financial interests were sufficient to preserve the long-standing seller’s exception for business owners who might be considering offering a workplace retirement plan.

As for this newest version, there is reason to think it may go even further; that it might actually prohibit existing plan providers from advising participants on investment options for plan distributions, blocking retirement plan participants from the plan advisor they most know and trust — while at the same time effectively leaving them vulnerable to the solicitations of others outside the plan who often offer more expensive options.

No, we don’t yet know what will be in the latest version — because, having brought two previous flawed versions to light, the Labor Department seems to have developed a case of stage fright when it comes to sharing, much less discussing the new version. Will the third time be a “charm?” Not likely, with so little input from, or dialogue with, those actually working with these programs.

As for those advocacy groups backing this as-yet-sight-unseen regulation — well, they might see advisors as a colony of termites, but the so-called solutions that the Labor Department has put forth thus far seem more likely to burn down the house of America’s retirement than to save it.

- Nevin E. Adams, JD

The saveourretirement.com website is funded by AARP, AFL-CIO, AFSME, Americans for Financial Reform, Better Markets, the Consumer Federation of America, and the Pension Rights Center.

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