“Middle class economics means that Americans should be able to retire with dignity after a lifetime of hard work. But loopholes in the retirement advice rules have allowed some brokers and other advisers to recommend products that put their own profits ahead of their clients' best interest, hurting millions of America's workers and their families.”
– U.S. Department of Labor
According to the U.S. Department of Labor, back door payments, hidden fees, bad retirement investments with high costs and low returns, and losses of $17 billion a year to consumers are the justifications for a proposed fiduciary rule. In short, the rule redefines who and what meets the definition of a fiduciary, and requires the fiduciary be held to a “best interest” standard as opposed to a “suitability” standard. While that definition has garnered much support, the remainder of the new proposed rule is so long and so complex that some members of Congress on both sides of the aisle are asking for a complete do-over.
More than a dozen members of Congress asked the DOL to immediately withdraw the proposal on the grounds that it would reduce access to investment options and increase costs for those saving for retirement, cutting off vital financial advice for many low- to middle-income families and small business owners – the very people the DOL said need protection the most.
Other members of Congress hailed the proposed rule, stating it was time to get rid of the “outdated” version implemented 40 years ago.
As the four-day hearing draws near, however, there are some groups who fall somewhere in the middle.
CUNA Mutual Group recently voiced its support for treating consumers with a “best interest” standard, but also said it is assessing the rule's potential business and compliance impacts on behalf of its credit union customers.
Kevin Thompson, vice president and associate general counsel for CUNA Mutual Group, said the proposed rule, while well-intentioned, is overreaching and unworkable.
“We are not against a fiduciary standard and we are not against being held to a standard where it says you have to put your customer's interest before your own,” Thompson said. “We support and we try to conduct ourselves with integrity, and we're here to support credit unions and credit union members. That's not a difficult or foreign concept.”
The problem, he said, is that the proposed rule was written by an agency that likely has gotten into an industry it does not fully understand.
“Some of the information they're saying you need to provide, literally doesn't exist,” he said. “I want to be in compliance but if this info is not attainable, what do I do?”
One of the proposed regulations in the rule is the requirement to report all fees, which does not apply to products that have a spread, such as share certificates. In other regulations, the dealer or broker must report all costs going forward, but current federal regulations prevent the prediction of future income or fees. The proposed regulations would force companies to break at least one federal regulation to follow another, he said.
Thompson said he will carefully watch the hearings, which begin Aug. 10, and see what transpires.
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