- The Washington Times - Monday, September 12, 2011


The House Financial Services subcommittee on capital markets is holding a hearing Tuesday on implementation of two important investor protection provisions in Dodd-Frank. While the hearing will primarily focus on increasing oversight of retail investment advisers and a uniform fiduciary standard, there is another alarming proposed regulation that will not only greatly affect all financial advisers but, more importantly, millions of average Americans trying to save for the future.

A rule proposed in late 2010 by the Department of Labor (DOL) that changes the definition of the term “fiduciary” for purposes of retirement planning advice would be harmful to many middle-class American families saving for retirement. The rule would entangle retirement-plan broker-dealers in new regulations - limiting choices for small investors and effectively pricing them out of the reach of professional advice on their individual retirement accounts. The simple fact is, many Americans would have to turn to the Internet or their brother-in-law, not a financial adviser, for their retirement advice at a time when everyone needs help more than ever before.

The DOL says it wants to protect retirement-account holders from conflicts of interest in the marketing and selling of investment options, particularly in the brokerage relationship model. But evidence that a problem exists is scant. The DOL’s concern is not based on any comprehensive body of data or eye-opening new study - at least that has been revealed to date.

In fact, the DOL has not even undertaken an economic analysis on the impacts of the rule despite strong bipartisan consensus of nearly 100 Democratic and Republican members of the House and Senate, who have urged the DOL to slow down and study the impacts before moving this rule forward.

Additionally, more than 4,000 of the Financial Services Institute’s financial advisers have sent letters to President Obama, explaining that this rule would threaten their ability to help hard-working, middle-class Americans plan for their retirement and would mean they would no longer be able to provide unbiased, affordable advice to individual retirement account clients they currently serve. Unfortunately, the department and the administration have not responded to these concerns and have refused to even acknowledge the need for more study.

The bottom line is if this rule were enacted, advisers would no longer be able to help many Americans plan for retirement. According to respected research house Oliver Wyman, 98 percent of retirement savers with $25,000 or less in their IRAs rely on financial advisers. When it comes to providing affordable, unbiased, independent financial advice to millions of Main Street Americans, you cannot overstate the seriousness of this matter.

As it stands now, this proposal is a lose-lose, both for consumers and advisers. As many as 18 million IRA account holders would no longer be able to afford to get answers to their basic questions and 1 million fewer IRAs would be established each year.

Further, this regulation particularly impacts accounts belonging to moderate-income savers. Direct costs for savers could increase anywhere from 75 percent to 195 percent once they are priced out of working with a financial adviser. The practical result is that many families would lose access to retirement information, education and services. It’s time for the administration and Department of Labor to pay attention to this important issue - to pay attention to the consequences for millions of Americans just trying to save for their retirement, especially in this time of economic uncertainty.

Although I’m not in the business of offering political advice, I would think that those who are would see this for what it is politically: the potential for millions of voters to open a letter from their financial adviser next fall and read that an Obama administration rule will mean they can no longer get advice from their adviser of choice.

There is time to stop this. There is time for the Labor Department to withdrawal and re-propose a new rule. The time is now.

Dale E. Brown is president and CEO of the Financial Services Institute.

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