The Department of Labor's new proposal to change the circumstances under which an investment advisor is considered a fiduciary under the Employee Retirement Income Security Act would increase costs and prevent access to retirement planning services, especially for those the lower-and middle-income brackets, according to a study by the Insured Retirement Institute.
More than 30 million households, 27 million of which are from the lowest wealth segment, hold assets in full-service, commission-based IRA accounts, said the IRI. Under the proposed rule, all advice provided through these brokerage accounts would be illegal.
As a result, these investors would have to leave their current accounts and switch to either fee-based advisor accounts, for which they would have to meet the minimum balance thresholds, or low-support brokerage accounts.
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But the IRI found that this would mean about 18 million IRA investors would not qualify for an advisory account and up to $240 billion in retirement savings would be lost. In the first year alone, as many as 900,000 accounts would not be opened, and between now and 2030, that number would jump to approximately 20 million.
The DOL has said the proposal is a "conflict of interest" rule to protect those with retirement plans from unscrupulous advisors who act in their own self-interest. But IRI's research revealed that conflicts of interest are not a major concern for American investors and an overwhelming majority of people are satisfied with their advisors.
Among those who use an advisor, the IRI study showed, 80 percent say they are better prepared for retirement because of their financial planner; 74 percent say they are likely to recommend their advisor to a friend or relative; eight in 10 are aware of potential conflicts; the overwhelming majority believe their advisor acts in their best interest; and less than five percent share the view expressed by the DOL to justify its proposed change, with less than one percent strongly agreeing with the DOL.
"With these findings in mind, it becomes clear that this rulemaking effort would contradict congressional and administration proposals to increase retirement savings," the IRI concluded.
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