On Aug. 6, 2020, Better Markets filed a comment letter on a proposed rule from the Department of Labor that would allow retirement advisers to accept forms of compensation and engage in certain practices that would otherwise be prohibited. This exemption from the DOL’s fiduciary rule creates a conflict of interest and could lead some broker-dealers and retirement advisers to foist overpriced and underperforming assets on their unsuspecting clients who trust them to properly manage their retirement portfolios.
This proposal is part of a series of changes to the rules implementing the Employee Retirement Income Security Act, a law passed by Congress in the 1970s to guarantee retirement savings were managed with the highest standards of loyalty and care. In 1975 shortly after the act was passed, the DOL created a set of regulations with numerous loopholes that allowed unscrupulous retirement advisers to avoid their legal duty to put their clients’ interests above their own. The DOL, which is responsible for enforcing the act, revisited these rules in 2016 and issued amendments that closed many of these loopholes. Unfortunately, after a concerted effort by members of the investment advice industry, these new regulations were invalidated and rescinded by the court.
The DOL responded to the court ruling by simply reinstating the deeply flawed rules from 1975 despite the plain fact that a rule written nearly half a century ago is ill-suited to govern the modern financial marketplace. Making matters worse, the DOL has now issued this proposed rule, which would give investment advisers even more leeway to enrich themselves at the expense of their clients.
The proposed rule would create a set of exemptions under which investment advisers would be allowed to make recommendations guided by clear conflicts of interest to their clients. The Council of Economic Advisors has found that such conflicted advice costs retirement savers $17 billion a year. The only protection the DOL intends to offer retirees from these powerful conflicts of interest is an ineffective disclosure regime.
The department has failed to offer any evidence that the proposed changes would actually benefit the American people. Although the DOL has spent an enormous amount of effort in its economic analysis quantifying the benefits and cost savings that the investment advice industry could expect under the proposal, it admits that when it comes to consumers and retirees, “[the DOL] has not quantified the benefits due to a lack of available evidence.”
The department has also failed to address previous research published in support of the 2016 rule which clearly demonstrated the risks that conflicted advice poses to retirees. These failures are not just bad rulemaking, they are also clear violations of the Administrative Procedures Act and the Employee Retirement Income Security Act itself.
That is why we urge the DOL to immediately rescind both this illegal and poorly written proposal and the 1975 rule. The department needs to remember its duty to American retirees and put forward a new rule that provides real protections for American’s hard-earned savings.
Read our full comments here or by clicking the button below.