If ‘Fiduciary Rule’ Goes Through, the Joke Is On American Savers

John Oliver’s viewers may think of themselves as the smart set, but the popular TV comic recently suggested that he rather deems them dim bulbs when it comes to personal finance.

Recently on his HBO show, “Last Week Tonight,” Oliver praised the Department of Labor for issuing its “fiduciary rule,” which mandates a vast swath of financial professionals to only serve the “best interest” of IRA and 401(k) holders—with “best interest” defined by the government. The rule is needed, said Oliver sidekick Billy Eichner while looking at a random young woman in the segment, because “idiots like Karen here make shitty choices when it comes to what to do with their money.” The upshot? Karen’s and other Americans’ retirement choices must be sharply restricted, according to Oliver, Eichner, and the Obama administration.

That conclusion is in line with the Labor Department’s claim when it first proposed the rule last year that individuals cannot “prudently manage retirement assets on their own,” and that they “generally cannot distinguish good advice, or even good investment results, from bad.” Furthermore, the department wrote that restricting choices, rather than greater disclosure, was the only answer because “recent research suggests that even if disclosure … could be made simple and clear, it would be ineffective—or even harmful.”

But others—including small business entrepreneurs, independent brokers and insurance agents, and savvy investors—strongly disagree and are fighting back. In fact, the smug paternalism of the rule’s proponents is reminiscent of Obamacare architect Jonathan Gruber’s brag that the “stupidity of the American voter” helped get Obamacare through Congress. Many  are calling the fiduciary rule “Obamacare for your IRA.

At the urging of my organization, the Competitive Enterprise Institute, and grassroots free market groups including Americans for Prosperity and National Taxpayers Union, the U.S. Senate and House of Representatives recently passed a resolution of disapproval under the Congressional Review Act to block the rule. President Obama vetoed this resolution, and the House will likely vote to override that veto today, with the Senate set to follow suit.

While the override attempt is likely to fail, the rule has already met bipartisan opposition, with three Senate Democrats—Sens. Heidi Heitkamp of North Dakota, Jon Tester of Montana, and Joe Donnelly of Indiana—voting with Senate Republicans for the resolution of disapproval. (And last September, 96 House Democrats, including progressives like Rep. Gwen Moore (D-Wisc.), wrote to the Labor Department expressing concern about the rule’s effects on consumer choice and access to advice and financial services for low-income savers).

Meanwhile, five lawsuits against the rule have been filed this month by national and local organizations in Texas, Kansas, and Washington, DC. The first was by the Securities Industry and Financial Markets Association (SIFMA), U.S. Chamber of Commerce, and the Chambers of Commerce of Irving, Humble and Lubbock, Texas. Another suit in the Lone Star state was filed by the National Association of Insurance and Financial Advisors and its chapters in Dallas, Fort Worth, Amarillo, and Wichita Falls.

These groups claim the Labor Department overstepped its authority, since Congress never gave it power to impose a fiduciary “best interest” standard on brokers and other financial services professionals. “The Department expands who is covered by the term in a manner that is inconsistent with the statutory text and the ordinary and historical understanding of what constitutes a fiduciary relationship,” says the suit by SIFMA and the Chambers of Commerce.

Oliver and other supporters of the rule say it is needed because of “hidden fees,” including commissions brokers and insurance agents may receive from the fund managers if their clients put certain mutual funds in their retirement portfolios. Yet, those fees are already disclosed. What they don’t say is that these fees are almost certainly less than those of investment advisers who charge savers a percentage of their retirement assets.

By discouraging commissions as a source of revenue, the rule would force financial professionals to charge their customers more. And in many cases, the portfolios would be simply too small to service. After the United Kingdom banned third-party commissions in 2013, a study by the Cass Business School at City University London found that brokers had largely stopped serving British savers with portfolios below £150,000 ($220,000), because the fees alone would not pay for servicing the accounts.

Secretary of Labor Thomas Perez implicitly acknowledges this loss of personal service that will result when he praises “robo-adviser” firms—firms that develop software that ask savers questions and set up portfolios with algorithms—and suggests that they could serve middle and lower-income savers. There’s nothing wrong with automated investment robo-services, but savers of all income levels should be able to choose personal service if they so desire.

It’s worth noting that no type of adviser is an automatic guarantee against mismanagement. Bernard Madoff charged clients a percentage of their assets and was a legal “fiduciary,” but that didn’t prevent him from being a crook. Fraud should be punished regardless of its source, and disclosure of potential conflicts of interest could certainly be made clearer. But if savers like their financial advisers, they should be able to keep them, without a bureaucrat or comedian coming between them.

Originally posted to Forbes.