Yahoo Finance Some Experts Think Biden’s Retirement Security Rule Will Hurt Your Wallet
The Department of Labor (DOL) announced in April that it had finalized its retirement security rule to “protect the millions of workers who are saving for retirement diligently and rely on advice from trusted professionals on how to invest their savings.” And now, some organizations and politicians have deemed the rule “harmful” for retirement savers and “flawed.”
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The rule, which will take effect on Sept. 23 — updates the “definition of an investment advice fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code,” according to an announcement.
This will apply when financial services providers “give compensated investment advice to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets,” according to the announcement.
Yet, the stated plan is not welcome news for some experts.
“The 2024 regulation has the same flaws and hazards for retirement savers as the 2016 rule that was vacated by a federal court. It’s clear that the Department did not learn from its past mistakes,” American Council of Life Insurers (ACLI) president and CEO, Susan Neely, said in a statement.
The ACLI further argued that the rule “eliminates important sales information and recommendations primarily used by low- and middle-income savers seeking the guaranteed lifetime income in retirement that annuities provide.”
“It leaves retirement savers with fiduciary advisors as their only option for professional financial guidance. Fiduciaries typically work with clients with a minimum of $100,000 to invest, far more than most working-class Americans have in savings,” according to the statement.
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Why Are Some Criticizing the Rule?
According to Thomas Savidge, economist with the American Institute for Economic Research, this regulation encourages “dangerous” federal overreach and reduces the number of financial management options — all while failing to ensure that these fiduciaries act in the best interests of investors, largely due to conflicting rules.
“Investors are left with fewer options and little peace of mind thanks to the Byzantine nature of these regulations,” added Savidge.
Some organizations have taken a step further, choosing to sue the DOL. For instance, the Federation of Americans for Consumer Choice (FACC) — along with several independent insurance agents — have filed a lawsuit against the department. These parties argue that the “new rules are yet another assault on the financial services industry — especially insurance agents — that only serve to create more cost and confusion for American consumers,” per FACC CEO Kim O’Brien.
Sen. Joe Manchin (D-W.Va.) and a group of Republican senators are also seeking to overturn the rule, suggesting in a May 15 statement it would cause Americans to “lose access to investment advice due to how broadly the rule defines fiduciary.”
“While I understand the Administration’s intent to protect Americans’ retirement savings, the truth of the matter is this does the exact opposite,” Manchin said in the statement.
Why Are Some Welcoming the Rule?
Other experts, meanwhile, argued that these changes are needed and that they will offer more protection to retirement savers.
For instance, Jay Zigmont — PhD, CFP, and founder of Childfree Wealth — said the challenge is that insurance companies can call themselves financial advisors, yet only sell insurance.
“Prior to this rule, they were not held to the fiduciary standard,” he said, explaining that a fiduciary is required to put the client’s interest ahead of their own. “Many of the groups that are lobbying against this rule are insurance companies who don’t want to be held to this standard. That means they want to be able to sell products that may not be in the client’s best interest, or at least not have to meet the standard.”
Other supporters of the rule — such as Anthony Termini, investment advisor and expert contributor for Annuity.org — said it is designed to protect people who aren’t rich.
“For all practical purposes, it pertains almost exclusively to IRAs and small 401(k)s,” he said. “Investors who participate in defined benefit and profit-sharing plans are typically wealthy enough to either control the investments that go into them or negotiate prices.”
While he said he is sympathetic to financial advisors’ concerns, he thinks they are mostly overblown.
“Any pain resulting from the new rule won’t be felt by consumers, who it is meant to protect. It might have some effect on Wall Street, but that should be short-lived as the industry figures out how to price the new rule into its business model,” he added.
Seeking Balance on the Issue
Sen Elizabeth Warren (D-Mass.) is a strong proponent of the new rule, posting on X: “I’ve fought for this reform for years — it’s great news for people whose hard-earned retirement savings will be safer, and it’s bad news for self-interested financial advisors who won’t get to make a buck off giving bad advice.”
Yet, one expert argued that her statements “show a distinct lack of respect for the good work that agents and advisors do for their clients.”
“The implication that financial professionals deliberately give bad advice to enrich themselves at the expense of their clients is offensive,” said Stephen Kates — CFP, principal financial analyst for Annuity.org. “It promotes fear of the financial planning and retirement industry at a time when Americans are woefully underprepared for financial success later in life.”
Kates, however, said he “wholeheartedly supports the good intentions behind this new rule,” yet added that he believes it misses the mark — and misunderstands the actual work being done with (and for) the average American by financial professionals of all kinds.
He noted, for instance, that while opponents to the rule — such as the ACLI — said fiduciaries typically work with clients who have at least $100,000 to invest (in turn leaving out a huge portion of the population) this understates the problem. Most financial advisors seek a much higher minimum asset level under management, closer to $250,000, before engaging with a new client, Kates indicated.
“Below these levels, the services available continue to trend toward automated robo-advisory services and self-service online tools,” he said. “I believe that working with a human advisor is a necessity for most Americans at some point in their lives, most often in preparation for their retirement.”
Ashley Tison, founder and president of OZPros, echoed the above sentiment, noting that while the rule is “well-intentioned,” it may inadvertently limit access to essential financial advice for many retirement savers.
“By mandating fiduciary-only advisors, the rule could exclude those with less than $100,000 to invest, leaving a significant portion of the population without professional guidance,” said Tison. “This restriction could lead to increased reliance on less regulated and potentially more costly financial products, ultimately harming the individuals the rule aims to protect.”
The Bottom Line
In the end, Kates said he had “mixed feelings about the new rule, as the lifeblood of this career is ‘the trust and respect you cultivate with your clients.'”
“I believe this ruling will slowly consolidate the industry towards the Registered Investment Advisor (RIA) space where clients pay either a flat fee or an assets under management fee for financial planning services, but this isn’t a fit for everyone,” he said. “Diverse needs require diverse solutions, and I believe industry consolidation works against that ideal.”
He added that it might hurt some retirement savers — particularly those without any other options for advice, and the people who are in the most precarious retirement positions. The latter are also the most vulnerable to people scamming them, Kates suggested.
“Protecting these people is the intention of the new rules, and this is a good intention,” he said. “But I don’t necessarily believe that further hamstringing the type of financial professional that most often works with these types of Americans is the right decision.”
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