With President Barack Obama now leading the charge, a
multiyear battle to update a fiduciary standard for anyone giving retirement
investment advice has defined contribution plan executives and service
providers bracing for big changes. As part of his campaign to do more to help
the middle class prepare for retirement, Mr. Obama announced Feb. 23 that the
Department of Labor sent its proposed rule changes to the Office of Management
and Budget for regulatory review before formally proposing a new standard in
the coming months. The new fiduciary standard would provide “uniform rules of
the road” requiring anyone providing retirement investment advice to put their
clients' best interest first, and bring up to date 40-year-old rules governing
retirement plan investments.
IRA advice targeted
One of the Labor Department's biggest targets is
inappropriate investment advice for IRAs, which are largely driven by rollovers
from 401(k) plans. According to the White House Council of Economic Advisers,
as much as $1.7 trillion of the $7 trillion IRA market are assets in wrong or
high-fee products that provide subpar returns.
Administration officials say the new proposal will look very
different from a 2010 attempt that got sent back to the drawing board after a
storm of criticism. This time, it will include economic analysis and several
exemptions to prohibited transaction rules that would allow service providers
to maintain their compensation practices, such as commissions and revenue
sharing, as long as clients' interests come first and potential conflicts of
interest are disclosed.
The Committee on Investment of Employee Benefit Assets,
Bethesda, Md., which represents more than 100 of the largest corporate plan
sponsors with $2 trillion in assets, wasted no time commending the Obama
administration for moving ahead with the rule. Long worried about conflicts of
interest, CIEBA members' particular concern is what they see as aggressive
marketing of IRAs to 401(k) plan participants when they leave employment that
may not be the most appropriate choice for the individual.
Although 90% of CIEBA member companies surveyed want to keep
assets of retirees and former employees in their defined contribution plans to
provide better retirement outcomes, less than one-fourth had a program to do
so, and many felt outgunned by financial services firm.
Other groups representing plan sponsors are more wary of
what the new standard will change. Particularly for smaller defined
contribution plans, “the biggest problem is going to be the chilling of
conversations” at call centers. If those conversations can't happen, that's a
lot of people who are going to be knocking on the door of HR.
"Important first
step'
At the Pension Rights Center in Washington, where advocates
have been pushing the Department of Labor since 2010 to try again think this is
a really important first step to ensure that people are going to get investment
advice that they can count on.
Kathleen McBride chairs the Committee for the Fiduciary
Standard, Bridgeville, Pa., a group of investment professionals and fiduciary
experts who think all investment and financial advice should be rendered as
fiduciary advice. Vanguard Group founder Jack Bogle, who has long argued
the fiduciary rule should be for anybody who touches other people's money, said
he is stunned by some of the negative comments before a final proposal is seen.
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