Following months of bipartisan concern, the Department of Labor eased some of the language in its final version of the fiduciary rule, released Wednesday, but not enough to ease critics concerns the regulation will inhibit low-and-middle income Americans from seeking retirement advice.
The 1000- plus page rule was intended to raise standards on those providing retirement advice by broadening the scope of who is considered a fiduciary. Under current policy, insurance salesmen, broker dealers and d
The agency decided to push back the timeline from eight months to a year, with full implementation taking effect April 2017.
Exemptions from the rule would pertain to financial planners recommending proprietary products, like fixed index annuities and variable annuities.
The agency received more than 3,000 comments on the proposed regulation, with many fearing it would it would become Obamacare for your retirement account.
One of the biggest concerns among top lawmakers with the initial proposal was its call to change the way advisers are paid – switching from commission-based compensation to a fee-based system – but the Office of Management and Budget and Labor Department opted to continue to allow firms to accept commissions and revenue sharing payments. There is, however, a caveat as retirement planners have to prove the products are in the clients best interest, creating additional steps to the process when recommending a product and an astounding amount of additional paperwork.
Ahead of the rule’s release, multiple bills were introduced in Congress, including the SAVERS Act spearheaded by Illinois Republican Rep. [crscore]Peter Roskam[/crscore] and Massachusetts Democrat [crscore]Richard Neal[/crscore], designed to prevent the change due to the likelihood the households that need financial planning most would not be able to afford the high fees inflicted while shopping for the investment that best fits their needs. Critics say a hike in fees is still likely to lead to an increase in costs due to the hurdles put in place.
“Saving for the future is daunting enough without Washington trying to make it harder,” House Speaker [crscore]Paul Ryan[/crscore], one of the rule’s most outspoken opponents said in a statement. “While it is clear that public and congressional scrutiny are making a difference, we will continue to look at every avenue to protect middle-class families and small businesses from government overreach.”
Advisers will now be required to disclose what they are making off of the product and disclose any conflict of interest that might be present when recommending an investment. It also encourages financial planners to steer clients toward more conservative options, which is not always the most beneficial in terms of reward, especially for young investors.
Several economists have warned without investors willing to take risks, economic growth is likely to be stifled over time.
Despite the agency’s attempt to loosen the language, the potential increase in compliance costs for advisers, government regulation on IRAs and the likelihood of small businesses will be swayed away from offering retirement plans due to the additional hurdles.
“This wrong-headed approach will pull the rug out from under hard-working, middle class families in communities across the country seeking expert advice on how to prepare for their future and adequately save for retirement,” Senate Finance Chairman [crscore]Orrin Hatch[/crscore] said in a statement. “While it will take time to review the final, thousand page rule, and its potential consequences, one thing is certain: the Department of Labor should not be the agency charged with regulating Individual Retirement Account (IRA) investment advice. IRA’s are part of the tax code. They have traditionally fallen under the purview of the U.S. Treasury Department and I firmly believe that is where they should stay.”
House Small Business Committee Chairman Steve Chabot of Ohio, who is also co-chairing a House task force on reducing regulatory burdens, called the rule “outrageous,” saying the rule penalizes small employers who are “already bound by too much red tape.”
“We continue to have serious concerns that these new rules will make it harder for low-and middle-income families to receive basic education about retirement savings and will create new hurdles for small business owners who want to offer their workers retirement options,” top lawmakers on the House Ways and Means Committee said in a statement. “Now that the department has put forward a final rule, we plan to review it thoroughly. We remain committed to using the tools we have to help all Americans retire with the financial security and peace of mind they deserve.”
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