March 17, 2022
In a blow to middle-income families across the United States, the Labor Department appears to be moving forward with plans to slap more restrictions on their retirement savings.
A proposed rule currently under discussion would broaden the definition of which investment professionals must be classified as fiduciaries under the 1974 Employee Retirement Income Security Act (ERISA). This misguided proposal stands to fundamentally limit the number of Americans who have access to affordable retirement planning.
This is not the first time Labor has tried to strengthen its grip on retirement investment advisors through regulatory fiat. In 2016, the department issued a similar rule, known as the Fiduciary Rule, aimed at reclassifying the status of nearly all investment professionals and financial institutions working with retirement savers.
The Fiduciary Rule would have effectively eliminated the most affordable savings option used by most Americans – commission-based financial guidance – where they pay per transaction.
If implemented, Americans would have been left with primarily fee-based advisory arrangements, typically where investors pay their financial professionals a percentage of their assets under management, which are often costlier and less accessible. By removing both choice and competition from the market, the lower-income Americans, whom the DOL claimed would benefit from the new rule, stood to be the most harmed.
Even economists at the left-leaning Brookings Institute commented to the Labor Department that fee-based advisory “may seem to take less of the investor’s funds, but that is not usually the case. . . . Regulations that push savers into accounts with (ongoing fees instead of commissions) may not be in their best interests.”
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