House Speaker Paul Ryan is wrong to oppose a rule that would protect retirement savers by putting their best interests first. House Speaker Paul Ryan has recently repeated industry talking points in opposing a rule that would require all financial advisers—including brokers and insurance agents–to put their clients’ interests first when recommending retirement investments. Today, those advisers can put their own economic interests ahead of their client’s best interests. The proposed Department of Labor rule would close that conflict of interest loophole and stop financial advisers from reaping huge profits by recommending overpriced and underperforming investment products to Americans struggling to save for retirement. Speaker Ryan is flat out wrong in opposing such a long overdue rule.
According to the DOL’s exhaustive analysis, the rule could save American workers and retirees tens of billions of dollars every year. In fact, the DOL study shows that as much as $43 billion a year or more is now being siphoned off by advisers because of bloated commissions and poor investment returns.
Speaker Ryan parroted industry’s claim that a rule to protect investors will actually do harm by choking off access to financial advice for “small balance accounts.” This is baseless, and it’s the same kind of tired, sky-is-falling prediction that Wall Street has made for 100 years whenever an important investor protection is proposed. And every time, as in this case, it has proven to be an empty scare tactic meant to protect their profits, not the hard earned savings of workers and retirees.
Here are the facts that contradict Speaker Ryan’s claims. First, most brokerage firms today don’t care about small accounts. They typically don’t even pay their financial advisers for providing advice to accounts with less than $100,000, or even $250,000 in some cases. The industry’s sudden concern with the plight of small savers is an insincere diversion meant to confuse people.
Second, the rule is far from being a “one size fits all” regulation as Speaker Ryan claims. On the contrary, the DOL tailored its proposed rule to accommodate the concerns of advisers. In fact, the rule will allow the industry to continue operating under different business models, including those that depend on commission income—as long as they put their clients’ best interests first. That’s a pretty reasonable requirement when you’re dealing with other people’s money.
Third and finally, the rule will not lead to what the industry spinners have called an “advice gap”—and the industry knows it. After spending years fighting the rule nonstop by claiming it is “unworkable” and threatening to abandon small savers, they are now reassuring their shareholders that they will adapt easily to the rule. And even if brokers and insurance companies were to walk away from their clients, as they already have for those with less than $100,000, there are lots of investment advisers and financial planners who already operate happily and profitably under the best interest standard. They will gladly provide unbiased, best interest investment advice to any clients the brokers refuse to serve, regardless of their income levels.
The bottom line is that, every day, countless hardworking American families trying to set aside a little of their paycheck for retirement suffer at the hands of financial advisers who are allowed to run up their fees rather than maximize returns for their clients. The financial firms that profit from this unfair status quo have waged a fierce, no-holds-barred war against the DOL rule. Today, Speaker Ryan joined the fight, but he picked the wrong side. He’s turning his back on Main Street to curry favor with Wall Street. That is wrong and the rule to protect retirement savers should be finalized without any further delay or interference.