The Department of Labor last week withdrew its proposed rule to require advisors who serve retirement plans or individuals saving for retirement to operate as fiduciaries. The proposal faced resounding opposition from a diverse array of industry and consumer groups, including NAIFA, and drew protests from many Republicans and Democrats in Congress.
A concern persistently voiced by many of the rule’s opponents was that it would limit the access of smaller investors in individual retirement accounts to affordable investment advice. A fiduciary duty for advisors and brokers who provide IRAs would almost certainly drive up regulatory and liability costs, which would be passed along to consumers. The withdrawn DOL proposal also would have severely limited the ability of advisors to receive commissions. Investors would be forced to pay fees for IRA investment advice. Fees, in practice, tend to be higher than commission costs.
Earlier this week, a DOL spokesperson said the department will reintroduce the rule early next year and that the controversial fiduciary requirement for brokers who provide advice on IRAs will remain in the proposal.
That is unfortunate. For Americans struggling in a difficult economy to save for retirement, the last thing they need is a regulatory barrier between them and investment advice.
That's because when it comes to retirement savings, advice is important. A report by consulting firm Aon Hewitt focused on 401(k) investors found those who sought investing advice saw annual returns nearly 3% higher than those who invested without advice. And 3% a year adds up. As an example, the report says a typical person who invested $10,000 and sought investment advice would have a balance of $71,400 after 20 years, while someone who invested the same amount for the same period but sought no advice would have $42,100.