How DoL's Fiduciary Rule Could Harm Americans' Ability to Retire

How DoL’s Fiduciary Rule Could

Harm Americans’ Ability to Retire The Obama Administration recently announced its support for an expanded “investment-advice fiduciary” rule that the Department of Labor is pursuing. FSR and its members are concerned that an overly broad expansion of the fiduciary definition would fail to address in a direct and surgical way, the Administration’s goal for this new rulemaking. It would likely result in a negative impact on the retirement security of American workers - particularly low-and moderate-income workers.

Why is this proposal expected to be harmful for millions of Americans trying to plan and save for their retirement?

• The Administration proposal could block millions of Americans with modest savings from access to professional investment guidance, a broad variety of investment products and services that meet individual needs, and reduce American workers’ access to their choice of financial professionals.

• The negative impact of these changes are expected to fall disproportionately on Americans with more modest retirement savings account balances by reducing access to financial professionals and causing the cost of financial guidance to skyrocket, according to a recent memo by Debevoise & Plimpton.

• As a result, Americans who could most benefit from planning and encouragement to save but who don’t have the time—or the desire—to learn the intricate details of complex investment options will likely choose to “fend for themselves”, Debevoise explains.

Why would this proposal make Americans’ struggle to save for retirement even worse?

• Most Americans have very little tucked away for retirement – about 36% of workers have less than $1,000 in retirement savings and investments. Nearly 60% of workers have less than $25,000 saved for retirement, according to a telephone survey by the non-profit Employee Benefit Research Institute and Greenwald and Associates.

• This could lead to less saving and more leakage from the retirement savings system, a major concern as workers change jobs or lose their jobs, according to a 2014 Quantria Strategies study released by Davis & Harman LLP. • It also could impede the ability of small firms to offer retirement plan accounts to their employees, which would hinder these workers from saving to meet their retirement needs, according to a 2014 study released by the U.S. Hispanic Chamber of Commerce and Davis & Harman LLP. • The Administration is likely failing to consider that without the guidance of financial professionals, lower-to moderate-income workers save less, or not at all.

• The Administration previously proposed an expansive fiduciary definition in 2010, but it was met with significant opposition from lawmakers who expressed concerns about the negative impact on low and moderate-income workers.

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• Almost 30% of small businesses with a 401(k) or similar retirement plan say that it is at least somewhat likely that if certain fiduciary definition rule changes were to go into effect, they would drop their existing plan, according to the 2014 United States Hispanic Chamber of Congress co-sponsored study. o The same study shows that for almost half of small businesses, it is at least somewhat likely that they would reduce their matching contribution, offer fewer investment options and increase fees charged to participants.

• Of small businesses that offer retirement plans, 65% believe certain fiduciary definition rule changes would be a bad idea, and nearly 30% say that it is at least somewhat likely they would drop their plan as a result.

Why do people rely on financial professionals?

• Individuals who work with a financial professional generally have significantly more assets at retirement than those who do not.

• Research shows that working with a financial professional can help individuals save more, better customize their portfolios and help increase individuals’ confidence in their investment decisions, according to a Harvard Business School study.

• The investment industry is already very highly regulated on the federal level by two regulatory bodies, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), as well as on the state level. (For example, annuity issuers, sellers, and distributors must comply with state and federal laws to protect consumers’ interests. Sellers must be registered with FINRA and licensed in their state.)

• Federal and state securities regulators have extensive examination and enforcement programs that are designed to deter and punish egregious behavior. The rules administered by the securities industry’s regulators protect American investors by effectively addressing—in a direct and surgical manner— improper conduct by securities broker-dealers and registered investment advisers.

• Roughly 67% of plan decision-makers at small businesses rely on an advisor for support in investment selection and monitoring, according to the U.S. Hispanic Chamber of Commerce study. o In contrast, half of decision-makers say that they either do or would do a “fair” to “poor” job in selecting and monitoring investments themselves. o 82% of plan decision-makers say that their advisor does a “very good” or “excellent” job in helping to select retirement investments, and 75% report that their advisors do a “very good” or “excellent” job monitoring and modifying retirement investment plans.

What is the Financial Services Roundtable doing?

• FSR continues to urge the Obama Administration not to enact any rule changes that would limit American workers’ access to professional retirement guidance, or investment products and services that could potentially reduce workers’ overall level of retirement savings and place the future of so many Americans’ retirement in jeopardy.

• FSR urges the Administration to consider ways to help low and middle-income workers save more for retirement and to ensure that they have access to financial professionals who can provide them with guidance about how much to save and how to best ensure that their families’ financial goals are met.

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