Compliance

Legislators Asked to Consider Effect of Rules on Retirement Savings

Witnesses called out regulations that hurt Americans retirement savings—the fiduciary rule, among others—and made recommendations for new rules that could help retirement savings—MEPs, among others.

By Rebecca Moore editors@assetinternational.com | May 19, 2017
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The U.S. House Education and the Workforce Committee’s Subcommittee on Health, Employment, Education and Pensions (HELP) held a hearing about regulatory barriers facing workers and families saving for retirement.

In his testimony, Bradford P. Campbell, Esq., Employee Retirement Income Security Act (ERISA) attorney and former U.S. Assistant Secretary of Labor For Employee Benefits, notes that the concept behind the Department of Labor’s (DOL)’s fiduciary rule—ensuring retirement savers receive quality retirement advice and assistance—is a good one.  However, he claims the rule executes this concept very poorly.  “Rather than focusing on specific problems, the fiduciary rule fundamentally disrupts the way advice and assistance is provided,” he said.                   

He explains that the basic problem is that the fiduciary rule equates the way an adviser is compensated with the quality of the advice, deeming certain compensation methods to be prohibited despite their extensive oversight by existing Federal, state and other regulatory and enforcement agencies.  “Under this structure, your financial professional might even be prohibited from making a recommendation that is in your best interest, simply because she receives a commission,” he noted. 

According to Campbell, advisers and financial institutions reported increasing minimum asset requirements for advisory accounts, a shift from commission-based accounts to more expensive fee-based accounts, reduced investment product offerings, increased litigation risks and compliance costs, and increased liability insurance costs. He cited an Investment Company Institute survey of its members (mutual fund providers) that showed an increase in the number of “orphan” accounts—shareholders who are no longer working with an adviser—as broker/dealers and other distribution partners began implementing plans to stop serving small clients. The average account balance in that survey was $17,138, “representing the loss of advice and assistance to the very retirement savers the Rule should be protecting, and who are most in need of assistance,” Campbell said.

He also cited a Vanguard study that showed individuals receiving professional investment assistance have as much as a 150 basis point increase in compound returns, due in large measure to the encouragement they receive to contribute more to retirement savings and to make other changes to their financial habits. “This highlights the fact that working with a professional is about more than picking investments—it is about a relationship that includes education and other financial assistance, no matter how the professional is paid,” Campbell said. 

NEXT: Open MEPs