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Conflict ‘Ed’ – Things Are Heating Up

The applicability date is right around the corner – but the conflicts regarding the conflict-of-interest regulation apparently aren’t going away any time soon.

In a report described as “a compilation of survey statistics and other data,” the U.S. Chamber of Commerce has pulled together information it says was submitted by various organizations in response to a DOL recent comment period, in response to the Feb. 3, 2017 presidential Executive Order on the fiduciary rule.

It doesn’t paint a pretty picture. Here’s a summary:

  • 92% of firms surveyed say that the rule could limit or restrict investment products for their customers, which could ultimately affect some 11 million households.

  • Up to 7 million individual retirement account (IRA) owners could lose access to investment advice altogether.

  • A survey of insurance service providers shows 70% already have or are considering exiting the market for small balance IRAs and small plans, and half are preparing to raise minimum account requirements for IRAs.

  • A survey of advisors finds 71% will stop providing advice to at least some of their current small accounts due to the risk and increased costs of the rule.

It’s not the first such document produced by the U.S. Chamber of Commerce, a long-time opponent of the fiduciary regulation, which has argued that the rule would “lock out” American small businesses from retirement plans. In fact, they have been one of the lead plaintiffs in litigation opposing the regulation still pending.

On the Other Hand…

Meanwhile, the Economic Policy Institute – which, like the Chamber, staked out a position on the fiduciary regulation early on, says that “this fleecing of retirement savers should be illegal.” It recently produced a state-by-state projection of how much retirement savers lose annually in each state as a result of receiving conflicted advice. Their estimates show that those losses range from $24.2 million in Wyoming, to $205.3 million in Iowa, just over a $1 billion in Texas, and nearly $1.9 billion in California, according to the “think tank focused on the economic condition of low- and middle-income workers.”

The figures are based on the $17 billion cited in a report by the White House Council of Economic Advisers, and broken down by state based on Survey of Income and Program Participation (SIPP) data from the U.S. Census Bureau, 2008. The EPI has previously estimated that the 60-day delay in the applicability date of the fiduciary regulation will cost retirement savers $3.7 billion over the next 30 years – though it cautions that this is an “undercount because it considers only individual retirement accounts, not other investment vehicles subject to potential conflicted advice, such as 401(k)s.”

Stay tuned. Who knows what the Labor Department’s review will bring…