The potential return of the fiduciary rule, which if passed would require stricter rules for financial advisors, has been met with mixed reception, with many in the financial services industry objecting to what they see as “unnecessary” regulation.
The White House announced Tuesday that its latest proposal focuses on retirement savings. If the law is passed, it will set stricter rules for financial advisers and how they recommend investment products to pension savers. The rule could also add IRAs to the protections established under ERISA, the federal law that oversees employer-sponsored retirement plans such as the 401(k) plan.
In its statement, the government said the proposal would “close loopholes and require financial advisers to provide retirement advice in the best interests of the saver, rather than chasing the biggest payday.”
The latest proposal is similar to the Obama administration’s fiduciary rule, officially known as the “Conflicts of Interest” rule, which was struck down by the courts during the Trump administration. With both proposals, the Biden and Obama administrations argued that the rule could save retirement savers billions of dollars in unnecessary costs each year.
To see: The White House says it wants to help retirement savers avoid billions of dollars in “junk costs.”
Fans of the measure say pension savers will be better protected.
“It is time to update the nearly 50-year-old regulatory framework under the Employee Retirement Income Security Act of 1974 (ERISA) to prevent advisors from escaping fiduciary responsibility even as they function as, and clients rely on them as, trusted advisors ,” the Certified Financial Planner Board of Standards said in a statement.
The CFP board oversees certified financial planners, who must act as fiduciaries under the designation. “The outdated law does not stop advisors from taking advantage of regulatory gaps to steer their clients toward expensive, substandard investments that pay the advisor well but eat away at retirement investors’ nest eggs over time.”
The latest proposal would focus on compensation related to conflicts of interest. “Junk fees,” Biden said during a news conference Tuesday afternoon, are what people pay when they seek trusted advice that comes with hidden costs.
The Obama administration said conflicts of interest could cause consumers to spend as much as $17 billion a year. The White House focused specifically on annuities in its announcement Tuesday morning, saying conflicts of interest in advising on the sale of fixed-index annuities alone could cost retirement savers “as much as $5 billion per year.”
Annuities in retirement accounts should work like retirement plans, providing steady income year after year, Biden said at the conference. “But when the advice is self-focused, annuities deplete people’s savings and yield much less than expected.”
“I’m not saying all brokers, I’m saying some,” he added.
What the critics say
But critics disagree with the proposal and its intentions. In a statement, Jillian Froment, executive vice president and general counsel of the American Council of Life Insurers, a trade association for the life insurance industry, argued that annuities can be useful for retirement planning.
“Traditional pensions are no longer the norm, and guaranteed lifetime income through annuities allows people to create their own pension. That is why annuity ownership has increased,” she said in the ACLI statement.
Many other organizations also opposed the proposal.
Many financial advisors, including broker-dealers, already comply with the Securities and Exchange Commission’s Regulation Best Interest rule, which requires financial advisors to disclose any conflicts of interest. Having too many rules can complicate things.
“It is imperative that new regulations harmonize with Reg BI. “Introducing more conflicting regulations would be unnecessary and could potentially hinder the ability of middle-class Americans to achieve a financially secure retirement,” said Dale Brown, president and CEO of the Financial Services Institute, a trade group for independent financial advisors and companies.
Also see: Fiduciary vs. Financial Advisor: What’s the Difference?
Others said it was just a way to gain more and unnecessary control.
“We struggle to see the need for more regulation, as opposed to robust enforcement,” said Jason Berkowitz, chief legal and regulatory officer at the Insured Retirement Institute, a retirement-focused association whose members include life insurers. asset managers. executives, law firms and broker-dealers.
Others say this will help customers find advisors they can trust. For example, AARP said in a statement that this proposal would help customers feel secure in the advice they receive from financial advisors.
“People should be able to trust their financial advisors to provide sound advice that protects and grows their retirement assets without conflicts of interest,” Jo Ann Jenkins, CEO of AARP, said in a statement. “A strong rule that closes the loopholes in current law will help safeguard their hard-earned retirement funds.”