After years of discussions, the Labor Department has issued its Conflicts of Interest Rule that requires investment advisers to act in a fiduciary capacity, legally requiring them to act in the best interest of their customers rather than themselves.
Federal retirees are among the groups affected by this new rule. A 2013 survey of National Active and Retired Federal Employees Association (NARFE) members revealed that many members felt they had received poor advice about their TSP holdings and options for rollovers once retired.
Under the new rule, “firms and advisers will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments,” according to the Labor Department.
Much of the immediate reaction has been favorable to the new rule. National President Richard Thissen of the (NARFE) said: “Release of this rule is a major accomplishment that will help to safeguard the retirement savings of all Americans, including federal employees and retirees who are currently receiving poor advice regarding their Thrift Savings Plan (TSP) holdings.”
Treasury Secretary Jacob Lew put out a statement saying, “Saving for retirement has changed dramatically since the Department of Labor issued the first fiduciary rule more than 40 years ago, and today individuals are increasingly responsible for their own investment decisions. Now more than ever, American families need investment advice that aligns with their interests.”
Most of those opposing the rule have been cautious in their criticism. “We will review the rule to determine if it disadvantages small businesses, limits access and choice to investment advice, or makes saving for retirement more expensive,” said David Hirschmann, president and CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. “Unless we see fundamental changes, this rule will remain unworkable and we will consider every approach to address our concerns.”
The Credit Union National Association (CUNA) issued a release that read “The Department of Labor’s final fiduciary rule is very complex and we’re evaluating its impact on credit union’s ability to best serve their members. CUNA has been active on this issue and raised a number of concerns since the rule was first proposed, and we will continue to work closely with regulators and lawmakers should we find in our analysis that there are issues in the final rule that negatively affect credit unions.”
Russell Investments conducted a survey of 258 financial advisors working for 228 investment firms in February and found that “49 percent of advisors are not making any changes until the rule is ﬁnalized and are likely underestimating the impact of the proposed rule.”
Since the rule is not effective until April 2017, the next President can decide whether the rule is permitted to stand as issued, modified, or withdrawn completely. Several members of Congress have already committed themselves to repealing or greatly modifying the new rule.
Congresswoman Ann Wagner (R-MO) issued the following press statement: “During a time when we are already facing a savings crisis in this country, this misguided rule will only raise costs, limit choices, and restrict access for Missouri families as they save for retirement. This is why I sponsored, and the House passed, the Retail Investor Protection Act (RIPA), bipartisan legislation that would require the SEC to take the lead on crafting such a regulation, not the DOL.”
In the meantime, federal retirees who deal with investment advisers might want to ask if their adviser adheres to the fiduciary standard, even though it is not legally enforceable yet, and get that answer in writing if possible.
As Secretary of Labor Thomas Perez said in announcing the rule, the phrase, “We put our clients first,” is no longer a marketing slogan; going forward it will be the law.