More Fiduciary Rule Opinions

Two sides to every coin? Sen. Elizabeth Warren (D-Massachusetts) and Rep. Elijah Cummings (D-Maryland), in a letter sent in February to Labor Secretary Thomas Perez and Director Shaun Donovan of the Office of Management and Budget, said that four large financial services providers are contradicting themselves. When discussing the fiduciary rule publicly, the insurers—Jackson National Life Insurance Co., Lincoln National, Prudential Financial and Transamerica Corp. —claim it will hurt investors and create burdensome, unworkable compliance headaches. But when they communicate with shareholders, the companies display much more confidence in their ability to adapt to new regulation. Jackson assured investors that it was “better situated” than its competitors to “quickly and effectively” address changes to the potential rule. 

Even Homeland Security hates the rule. Sen. Ron Johnson (R-Wisconsin) released a report that doesn’t seek to hide his low opinion of the rule. In “The Labor Department’s Fiduciary Rule: How a Flawed Process Could Hurt Retirement Savers,” Johnson cites a large crop of experts, industry advocates, business associations and reports, including one from 2015 estimating the rule would cause losses of $68 billion to $80 billion in retirement savings per year and “jeopardize retirement readiness for 11.9 million IRA [individual retirement account] and retirement participants.” 

The 40-page report, which was technically issued by the Committee on Homeland Security and Governmental Affairs, which Johnson chairs, is worth reading for some interdepartmental arguments between the Securities and Exchange Commission (SEC) and the DOL. A DOL staffer wrote to his SEC counterpart, “Well, I hate to break it to you, but you’re wrong.” The SEC staffer responded by email that he was “utterly confused” about the proposed rule’s purpose.

The “definitions” debate. Knut Rostad, president of the Institute for the Fiduciary Standard, said on a ThinkAdvisor blog that the debate on fiduciary is over, but the battle over the meaning of the word and of “best interest” is still going full force.

CFPB gives rule a thumbs up. Richard Cordray, director of the Consumer Finance Protection Bureau, said at a recent event discussing retirement savings that it is critical for Americans who depend on professional advice in retirement savings decisions to be able to trust their financial advisers. “Advisers who receive hidden payments for steering consumers into more expensive retirement investments can cost people tens of thousands of dollars in extra fees and lower returns,” Cordray said. He registered his support of Perez and said biased advice and mystery fees were responsible for obscuring how much money people are actually losing from retirement savings: “Sometimes bad advice can be even worse than no advice at all.”