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A financial services trade group opposed to implementing the latest iteration of the Department of Labor’s (DOL) fiduciary rule released the results of a survey it recently conducted on potential costs.
The Financial Services Institute (FSI), an independent broker-dealer advocacy organization, and Oxford Economics, which conducted the survey, found that the DOL’s proposed rule “would result in significant costs, impose undue burdens, and adversely affect Main Street American investors’ ability to access professional financial advice, products, and services.”
“The proposed rule will cost firms $2.7 billion in the first year, 11 times the Department’s estimate of ongoing costs,” FSI wrote. “The rule will continue to cost $2.5 billion each subsequent year. In addition to electronic disclosures, FSI members expect advisors to print approximately 120 million pieces of paper annually to comply with the proposal."
It added that the department “relied on data collected before Reg BI and PTE 2020-02 went into effect, and the DOL’s regulatory impact analysis too lightly dismisses the proposal’s impacts on small investors.”
However, the survey all but ignored a significant regulatory gap that currently exists regarding plan-level advice to small businesses, a gap that the Retirement Security Rule would close.
As American Retirement Association CEO Brian Graff noted in testimony to DOL leadership and staff in December, small business retirement plans are often “sold rather than bought” due to business owner time constraints, there is no ongoing advice relationship, and the "regular basis" prong of the 1975 five-part test is therefore not satisfied. Additionally, the SEC’s Regulation Best Interest (Reg BI) and the NAIC’s Model Rule cover individual investors, not those in retirement plans.
While explaining that advice to plan fiduciaries was largely outside the scope of its review, Oxford said in a footnote that ERISA plans “typically have managers who act as fiduciaries to the companies and employees in them, but who themselves may obtain recommendations from brokers and others, who are not currently fiduciaries. These plan fiduciaries are typically more sophisticated than retail investors. We thus expect the benefits to plan fiduciaries to be minimal.”
Oxford was also commissioned by the FSI to perform a study in 2015-16, and the latter was one of the plaintiffs in the 2018 decision by the Fifth Court of Appeals vacating the earlier version of the fiduciary rule.
Click HERE to download the full survey results.
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