In an op-ed published in Townhall last week, ATR Federal Affairs Manager Bryan Bashur discusses that the Department of Labor (DOL) is expected to issue a rulemaking, which would reduce retirement savings for millions of minorities and lower income Americans.
The DOL rule will likely mimic an Obama administration rule, which was previously vacated by the Fifth Circuit Court of Appeals in 2018. One study commissioned by the Hispanic Leadership Fund outlined the detrimental effects this rule would have on retirement savings for minorities. As Bashur explains:
The study states that it would “reduce the projected accumulated retirement savings of 2.7 million individuals with incomes below $100,000 by approximately $140 billion over 10 years.” The study also concludes that a revival of the 2016 rule would “have the most adverse effects on Blacks and Hispanics – reducing their projected accumulated IRA savings by approximately 20 percent over 10 years – contributing to an approximately 20 percent increase in the wealth gap attributable to IRAs for these individuals.”
Individual firms and industry representatives raised concerns that the Obama-era rule would limit investment options for consumers. As Bashur points out:
Comments submitted to DOL prior to the issuance of the final 2016 rule, expressed concerns that it would limit investment options for middle-income households. A comment letter drafted by PFS Investments, Inc., bluntly stated that the rule would “harm the very consumers it was intended to protect” and young families would be “limited to investing in taxable accounts, or be left with no in-person financial professional.” The Investment Company Institute argued in one of their comment letters that the application of the fiduciary standard was so broad that brokers would have “no choice but to discontinue providing those information services” while investors will have to “pay substantially higher fees” to get the same information from other advisers.
Instead of copying Obama’s rule, DOL should draft a rule that complements the Securities and Exchange Commission’s “Regulation Best Interest.” This would ensure brokers put their clients’ best interests ahead of their own. Bashur highlights that:
Instead of placing brokers and investment advisers under the same regulatory umbrella, any new regulatory framework should be tailored to how the businesses operate. In 2019, the SEC stated in an interpretative document that “Investment advisers and broker-dealers have different types of relationships with investors, offer different services, and have different compensation models.”
The work rendered by a broker and an investment adviser differs and should be regulated according to the varying business models. Instead of providing direct investment advice, brokers act “on the direction of the plan participant to buy or sell a particular security or mutual fund” and “may have a lower standard of duty.”
Complementing Regulation BI instead of writing a conflicting rule would also mitigate compliance costs. Bashur states that:
A new standard could cost brokers millions of dollars in compliance costs on top of the millions they have already spent to comply with Regulation BI. Deloitte conducted a survey of twenty brokers and found they spent $114 million on compliance, including $61 million on technology costs. Compliance costs since the effective date of Regulation BI is an aggregate annualized cost of “$59 million or an average annual spend of over $2.9 million per firm.”
Bashur concludes that DOL is at risk of significantly harming Americans’ retirement savings if “it supersedes its statutory authority and writes a rule that conflicts with Regulation BI and restricts financial savings options for Main Street.”
Click here to read the full op-ed.