Labor Department’s new rules are a costly, confusing bureaucratic maze for most investors

WASHINGTON, D.C.—The Department of Labor has proposed a complex and flawed set of new rules that will do nothing to further the goal of ensuring financial advisers put their clients first. We agree with the Department’s goal, but the maze of bureaucratic rules they have proposed simply won’t work. If not fixed, it will create more confusion and fewer choices for middle class savers, particularly the 12.3 million American households whose Individual Retirement Accounts (IRAs) currently have less than $25,000.

It will also make offering retirement plans costlier and harder for small businesses, impacting the nine million households that have access to retirement plans through the small businesses that employ them. In fact, the proposal perversely singles out businesses with less than 100 plan participants for more costs and regulation—the ones that can least afford to pay it. This rule will create two classes of savers: those who can afford to pay much higher fees to have someone help them manage their money, and those who will lose access to advice because their accounts simply aren’t big enough to cover the costs imposed by the new rules. The proposal even goes so far as picking which types of investments are “in” and which are “out.” There is no disagreement that financial advisers should put their clients first. Let’s hope we can also agree to help make it easier, not harder, for Americans to save more, and to get needed advice on how to do so.

---

The Department of Labor’s own analysis in 2011 found that investors lose more than $100 billion annually because of investment mistakes made due to lack of access to investment advice. There are already regulations in place that make it illegal for anyone to sell you an investment that is not suitable for you. We agree the rules can be made even stronger. We can also improve what investment advisors are required to disclose to their clients to help them make good decisions. However, this rule will actually make that much harder by saying who can get advice and when. Since the Department of Labor is only one of the many regulators in this space, their proposal would result in at least six different sets of standards depending on what type of investment you are making. Want advice on buying a mutual fund from your broker? One set of rules. Want advice on what to do with your 401K when you switch jobs? Another set of rules. Have a question about which option to choose within your current 401K, yet another set of rules. How is this more clear and better for investors? Even the regulators can’t seem to agree with each other on what is in your “best interest”. The proposals by the Department of Labor run directly afoul of current rules of the Securities and Exchange Commission. For example, required disclosures include projections of fees one, five and ten years out, but such disclosures are prohibited under securities law, as projecting fees require a prediction of returns, which is a major no-no. The good news is that it’s not too late for the Department of Labor to make needed improvements and fix the retirement rule to make saving easier and better for small businesses and their employees. After receiving thousands of detailed comments, it is considering which changes to make. We hope they will take this task seriously and show everyone how they intend to fix this flawed rule. If they don’t, Congress should step in and force them to slow this down and get the rule right, before millions of Americans lose access to their current retirement advisers. David Hirschmann is President and CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. Readers may write him the U.S. Chamber, 615 H Street, NW Washington, DC 20062-2000