A federal appeals court in New Orleans heard arguments Monday to stop the Fiduciary Rule, an Obama administration regulatory relic that imposes high costs on Americans saving for their retirement.
The Wall Street Journal explains in an editorial [subscription required]:
The rule applies a fiduciary standard to the broker-dealers and insurance agents who assist their clients with IRAs. The claim is that this will protect ordinary investors from brokers who recommend certain investments because of the commissions they get. But the new rule imposes many new burdens, from new disclosure requirements to changes to compensation practices.
As so often happens, the new reality is harming the very people the rule is meant to help. One problem is that small investors often can’t afford the higher costs associated with the fee-based investments the rule promotes. Another is that some firms will no longer serve the retirement funds of small business plans because the account balances aren’t large enough for the risk. Then there’s the added paperwork and costs that are many times Labor estimates.
Even though the rule partially went into effect last month, its harmful effects are already being felt by small retirement savers:
- 92% of firms surveyed say that the Rule could limit or restrict investment products for their customers, which could ultimately effect some 11 million households
- Up to 7 million individual retirement account (IRA) owners could lose access to investment advice altogether
- A survey of insurance service providers shows 70% already have or are considering exiting the market for small balance IRAs and small plans, and half are preparing to raise minimum account requirements for IRAs
- A survey of advisors finds 71% will stop providing advice to at least some of their current small accounts due to the risk and increased costs of the rule
- Other surveys found that 35% of advisors will stop serving accounts under $25,000, and 25% will raise their client minimum account thresholds
The SEC, the federal agency with the most experience in overseeing investment advisors and broker-dealers, has taken up the issue and is working on investment-advice standards. Also, Congress can step up and clearly define rules for advisors providing advice to savers.
That way we encourage more retirement saving instead of erecting barriers that discourage it.