As the Labor Department moves closer to a fiduciary standard, rhetoric reaches fever pitch

As the Labor Department moves ever closer to a final fiduciary standard rule, the rhetoric, predictably, has reached fever pitch.
The department’s recently completed four-day marathon of hearings featured the usual suspects trotting out the usual arguments — and self-funded studies — for or against the rule.

Industry representatives insisted that the rule as proposed is too expansive and would significantly limit the choice of products for investors, raise the cost of advice and generally wreak havoc with retirement plans and savers.

The Labor Department says the rule is needed to insure brokers don’t put clients in high-fee products that could erode retirement savings, and proponents argued that the rule, while perhaps needing some clarifications and tweaks, is pretty spot on.

Seventy-five witnesses spoke over the four days, and the Labor Department has opened a new public comment period that is scheduled to end approximately two weeks after the hearing transcript is posted. It would appear the department is doing all it can to gather input from all sides.

While the hearings gave interested parties a soapbox on which to repeat their arguments, they offered precious little new information or insight.

Indeed, as Duane Thompson, senior policy analyst for Fi360, a fiduciary-duty consulting firm, told InvestmentNews reporter Mark Schoeff before the hearing, “It’s more of a political exercise than anything else.”

But as the DOL inches toward the fiduciary finish line, foes are becoming particularly virulent in their opposition, as if a fiduciary standard for retirement plan brokers would pave a slippery slope to the end of the world as we know it. At the very least, one can hear the gears of lawsuits beginning to turn so they’ll be at full speed when a final rule is promulgated.

OLD CANARD

Despite all the noise — and it is noise — there remains no valid reason why brokers working with 401(k) and individual retirement accounts cannot place their clients’ interests ahead of their own. The suggestion, based on data not independently verified, that a fiduciary rule for such brokers would limit choice and raise costs for investors is an old canard that makes for great headlines but fails the smell test.

In 2010, Michael Finke and Thomas P. Langdon, both certified financial planners, took an in-depth look at brokers, dividing them into those who worked in states that apply a strict fiduciary standard, those in states with a limited fiduciary standard and those in states that apply no fiduciary standard.

Their study, in which they polled 544,000 registered representatives, found no evidence that a fiduciary standard on brokers would have a material impact on their business.

“Imposition of a universal fiduciary standard among financial advisers may result in a net welfare gain to society, and in particular to consumers who are ill-equipped to reduce agency costs on their own by more closely monitoring an adviser with superior information, although this will likely occur at the expense of the broker-dealer industry,” the authors concluded. “These results provide evidence that the industry is likely to operate after the imposition of fiduciary regulation in much the same way it did prior to the proposed change in market conduct standards that currently exist for brokers.”

Here’s an idea: With just 19% of Americans saving more for their retirement today than they were a year ago and 14% saving less (not to mention the 10% who contributed nothing to their retirement accounts this year or last year), according to Bankrate.com, how about fiduciary rule opponents get together to help Americans actually save for retirement.