“A fundamental shift in Wall Street culture” is what the Department of Labor is aiming for with the “fiduciary rule.” That’s what DOL Deputy Assistant Secretary Tim Hauser said in an interview with FinancialPlanning.com during recent hearings on the proposed regulation that has been called “Obamacare for Your IRA.”
But the vast majority of comments submitted on the rule—most of which came far away from Wall Street—called on the DOL to change its own culture of paternalism, an analysis by the Competitive Enterprise Institute shows. Many of these comments took aim at the DOL’s explicit contention in the rule, which I have written about here and elsewhere, that individuals can’t “prudently manage retirement assets on their own,” and that they “generally cannot distinguish … good investment results from bad.”
Individual savers, however, begged to differ on their ability to manage their own retirement accounts and expressed outrage at the regulation’s limiting of their ability to seek guidance from brokers and pursue individualized investment strategies. A retiree named Don Schwartz pleaded with the DOL: “Leave my retirement alone. I need no help from the Federal government with my 401K.” After explaining that he was “doing just fine thanks to the company I retired from and my own personal decisions I made along the way,” Schwartz told the DOL loudly and clearly, “Quit helping me, I'm smarter than you think I am.”
Under the new rule, those currently saving for their retirement will likely not have the options savvy retirees like Schwartz had. Financial professionals who provide even one-time guidance or appraisal of investments could find themselves classified as “fiduciaries,” even if the clients they serve make their own investment decisions for their 401(k)s and individual retirement accounts (IRAs). These professionals will face liability and government penalties (and their customers may face taxes on newly “prohibited transactions”) if they do not adhere to what the DOL determines to be the “best interest” of an investor.
This means today’s savers could lose everything from low-cost brokerage services to the ability to put alternative assets like gold, silver, and real estate into their IRAs. Robert Litan of the Brookings Institution and Hal Singer of the Progressive Policy Institute conclude in The Wall Street Journal that the reduction in personalized investment guidance the rule would engender could cost savers $80 billion over the next decade.
CEI’s breakdown of the comments show massive opposition to the rules, particularly among the middle-class savers DOL and its supporters say they are trying to help. Here are the findings of the analysis of more than 900 comments filed to DOL on the rule. The analysis was conducted by CEI Research Associates Chris Kuiper and John McDonald, as well as myself.
- 74 percent of individual commenters with no listed business interest opposed the rules. 22 percent supported, and 4 percent were neutral. Like Mr. Schwartz, many of the 354 commenters pointedly told the DOL to leave their retirement savings alone. “Stay out of my retirement investing,” and “please stay out of my 401(k)” are the typical sentiments of these concise comments. Some, like Linda Nein of Salem, Oregon, called out the gall of the government to accuse them of not being able to “prudently manage” their retirement accounts after the Obama administration blew $535 million on the Solyndra green energy boondoggle. These individual savers may have been encouraged to file comments by a column I wrote for FoxNews.com and an “action alert” from FreedomWorks, but they put their own sentiments and experiences into their comments.
- Many of the “industry” comments were from individual financial professionals far away from Wall Street, and they were overwhelmingly opposed. Among those 177 commenters were many individual broker-dealers and insurance agents, some with one person-practices, from all over the United States. 77 percent of them opposed the rule, 11 percent supported, and 12 percent were neutral A particularly poignant comment was filed by John Dardis, a broker-dealer in Metarie, La. He wrote DOL that the rule as written would prevent him from servicing the retirement accounts of his 10 children, their spouses, and his 29 grandchildren. “To force my children to choose a competitor who may or may not have the same care or integrity is a risk I do not believe my kids should have to take,” he pleaded.
- While most of the “industry” comments were opposed to the rule, a large chunk of industry supported the rule. 51 comments from the financial industry supported the rule, and another 59 comments were neutral. Supporters advanced similar “level playing field” arguments used by industry groups—think taxi drivers blocking Uber—to protect themselves from competition. The Financial Planning Coalition, representing advisers who already market themselves as fiduciaries, commented to DOL, “We believe that there is no justification for applying different standards of care to advisers who are offering the same services to retirement investors.” Actually, the justification is simple. Some investors are more active than others in managing their retirement plans, and they choose their financial professionals accordingly. This rule would eliminate that choice for the more self-directed investors.
- Many of the supportive comments came from labor unions and union-backed groups, who have an obvious interest into herding workers union-run, defined-benefit pensions. Among the unions filing supportive comments were the American Federation of State, County, and Municipal Employees, the International Brotherhood of Electrical Workers, the Service Employees International Union, and the AFL-CIO. Also filing comments was the umbrella group Americans for Financial Reform, which includes many unions as members. Big Labor is always railing about what it believes are the shortcomings of defined-contribution vehicles like IRAs and 401(k) and singing the praises of defined-benefit pension plans, which are frequently managed by unions. Any rule that would increase the cost or lessen the availability IRAs and 401(k)s could cause a clamor for unionization to provide defined-benefit plans. But this would be terrible news for workers, as union bosses have frequently mismanaged—or just plain looted—the defined-benefit plans of their workers. And this is the case even though they were already designated as “fiduciaries” under the law. Yet the Obama DOL shows no signs of protecting workers’ retirement accounts by reining in Big Labor shenanigans.
Despite so many individual savers, Main Street financial professionals, and even some congressional Democrats expressing strong concerns about the regulation, DOL is by all indications proceeding full speed ahead and if not stopped may even put out a final rule as early as the end of this year. In a conference call this week, Rep. Ann Wagner (R-Mo.) said that the fiduciary rule is the Obama administration’s biggest priority “other than the Iran deal or climate change.”
That’s why it’s imperative that Congress stick to its guns and stand firm on the funding freezes for this rule currently in the House and Senate appropriations bills. It should also pass Wagner’s bipartisan Retail Investor Protection Act—H.R. 1090—that would stop the DOL from issuing a fiduciary rule until the Securities and Exchange Commission deals with the issue first, and would require both agencies to more strongly consider impact on investor choice when proposing a regulation. And the army of savers that weighed in during the comment period needs to keep sounding the alarm to both Congress and the DOL!
Here are the comments that CEI and FreedomWorks Foundation filed to the DOL on the rule.