As stakeholders set upon Washington D.C. next week for four days of exhaustive hearings on the Department of Labor’s proposed fiduciary rule, several more Democrats have raised formal concerns over the regulation’s potential for unintended consequences.
In a letter to Labor Secretary Thomas Perez, Sen. Claire McCaskill, D-Missouri, applauded the Department’s efforts to create a “universal best interest standard,” but said “there are still risks in the proposal.”
As proposed, the rule would force most investors from a commission-based brokerage model to a fee-based advisory model, a more expensive option, said McCaskill, “and quite possibly unaffordable for holders of small accounts.”
That would mean more individuals would lose access to in-person advice. About 98 percent of IRA accounts hold less than $25,000.
“At a time when policy-makers and regulators should be preserving, protecting, and enhancing retirement savings policy, the proposed rule reverses what has been a recent trend to increase coverage, reduce leakage and enhance savings vehicles,” wrote McCaskill.
The letter lays out a fairly exhaustive list of concerns raised by stakeholders that oppose the rule.
In its current form, the proposal “appears to prohibit rollover advice,” she said.
The “seller’s exemption” in the proposal, which does not extend to sponsors of workplace plans with less than $100 million in assets or fewer than 100 participants, would make it more difficult for the country’s small employers to offer a plan, at a time when that market remains underserved.
That part of the proposal amounts to a “blanket rule eliminating advice for small employer plans,” said McCaskill.
She also addressed the proposal’s restrictive language on investment education, and said that as written, it would “nearly eliminate access to many annuity products,” at a time when bipartisan efforts in Congress have aimed to increase access to lifetime income products.
And requirements in the Best Interest Contract Exemption provision that require advisors provide one, five and 10 year cost estimates on investments “may run afoul of securities laws.”
In a separate letter, three Democratic Senators—Jon Tester, D-Montana, Heidi Heitkamp, D-North Dakota, and Joe Donnelly, D-Indiana—joined Sen. Angus King, I-Maine in a letter to Perez warning the proposal could stifle access to investment advice to “Main Street investors.”
The Senators call on Perez to amend the proposal to better protect commission-based advice, an echoed many of the concerns laid out in Sen. McCaskill’s letter.
“Concern about the rule as drafted has already led to legislative proposals in Congress that would prevent the DOL from completing action on this rule,” wrote the Senators.
“We believe there is an opportunity to craft a system that better protects investors while at the same time ensuring that we do not limit access to advice,” they said.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
