Labor proposal limits choice: Opposing view
Saving for retirement should be easy, not hard. Unfortunately, a U.S. Department of Labor (DOL) proposal could make saving for retirement more difficult and costly, particularly for smaller investors.
The financial services industry has long supported enhancing the already extensive regulation of financial advice through the establishment of a uniform, best-interest standard for brokers and advisers providing retail advice, including congressional action in 2010 to have the Securities and Exchange Commission take the lead. Congress made clear that the standard should both protect investors and investor choice. Unfortunately, the DOL’s proposal runs counter to what Congress intended, and if enacted, it will limit advice and restrict choice.
Most retail investors, including retirement savers, choose brokerage accounts because they are “buy and hold” investors, and brokerage accounts are a more cost-efficient choice. Roughly 98% of savers with IRAs under $25,000 are in brokerage accounts. Others choose managed accounts where the adviser provides ongoing management of the investor’s assets. Given the additional level of service provided, such accounts cost more.
Most financial firms provide both types of accounts. And, both types of accounts are subject to stringent regulation, with brokerage accounts subject to multiple layers of regulatory supervision, examination and enforcement to ensure investor protection.
The retirement racket: Our view
The DOL’s regulation, which contains hundreds of pages of new restrictions and requirements, could essentially eliminate the brokerage model option for most retirement savers. A recent independent analyst report by Morningstar estimated the DOL rule would cost savers an additional $13 billion a year. Investors who don’t want to pay the extra fees for the same level of advice will be forced to go it alone.
We believe that DOL’s approach will do more harm than good. It is too complex and convoluted to work as proposed. If it becomes final without further review and input, it will harm the very people it purports to help.
Kenneth E. Bentsen Jr. is the president and CEO of the Securities Industry and Financial Markets Association (SIFMA).