The Department of Labor’s fiduciary rule has not yet fully taken effect, and already retirement savers are feeling the burden. Both the financial services industry and the public have seen in real time the negative effect that the rule has had on retirement savings and on retirement investors.
In the last 15 months, investors have seen a loss of product choices, loss of a financial professional to talk to, more expensive products and the relegation of retirement savers to the internet or call centers. We have seen small accounts terminated, shifts to advisory solutions for retirement savers and access to municipal bonds and new issues cut off. We’ve also seen confusing differences between the products and services that may be offered to personal taxable accounts versus retirement accounts.
{mosads}Retirement savers have been incorrectly led to believe the rule did not require anything other than that their financial professionals acting in their interest and therefore would have little impact on them. These savers are reasonably upset at what they see as wholesale changes in the products and services available to them, along with fundamental changes in their relationship with their financial professional.
To quantify the rule’s impact, The Securities Industry and Financial Markets Association (SIFMA) recently commissioned a study, surveying a cross-section of SIFMA members to analyze the potential impact of the rule. The 21 financial institutions included in the study represent 43 percent of U.S. financial advisors and 30 percent of the retirement savings assets in the market.
The study found that access to brokerage advice services has been eliminated or limited by many financial institutions as part of their approach for complying with the rule, and that retirement assets have shifted to fee-based or advisory programs because of those limitations.
In fact, 53 percent of study participants reported limiting or eliminating access to advice brokerage for retirement accounts, impacting 10.2 million accounts and $900 billion AUM.
Roughly 90 percent of study participants reduced access to or choices within the products offered to retirement savers as a result of efforts to comply with the rule. Products affected include mutual funds, annuities, structured products, fixed income and private offerings, impacting 27.3 million accounts.
Survey participants indicated that they spent approximately $595 million preparing for the initial June 9, 2017 deadline and expect to spend over $200 million more before the end of 2017. Multiplied industry-wide, that equates to a projected spend in excess of $4.7 billion in start-up costs relating to the rule, far-exceeding the Department of Labor’s 2016 estimated start-up costs for broker-dealers of $2 billion to $3 billion. The ongoing costs to comply are estimated at over $700 million annually.
With so much new evidence, we agree with the department’s proposal to delay the rule’s January 1, 2018 applicability date, and will be issuing a letter of support. This will give the department adequate time to conduct a comprehensive review of the rule, as directed by the president in a February 3, 2017 memorandum.
If the review concludes there have been harmful effects or if it otherwise conflicts with the president’s priority that Americans be empowered to make their own financial decisions, revisions surely cannot be completed by the January 1, 2018 date.
We have long supported the creation by the SEC of a best interest standard to protect retail investors, but as new and old evidence demonstrates, the Labor Department’s rule is not the solution. It is our hope that the department will take into account the overwhelming evidence and rescind or significantly revise the rule in order to better serve retirement savers.
Kenneth E. Bentsen, Jr. is president and CEO of the Securities Industry and Financial Markets Association (SIFMA). SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.