The Obama administration has finalized a regulation expanding the government’s role in Americans’ retirement savings and defining a broad swath of financial professionals as fiduciaries – potentially even financial commentators.
The administrative rule is being enacted without Congress. Critics fear it too broadly defines a fiduciary as anyone earning income by giving advice on individual retirement accounts or 401(k) retirement savings.
“Today, the rules of the road do not ensure that financial advisers act in their clients’ best interest when they give retirement investment advice,” a White House press release said. “Instead, some firms incentivize advisers to steer clients into products that may have higher fees and lower returns. These conflicts of interest in retirement advice cost America’s families an estimated $17 billion a year.”
Thomas Perez, U.S. Secretary of Labor, listens during a U.S. Labor Department panel discussion at the Center for American Progress in Washington, D.C., U.S., on Wednesday, April 6, 2016. The Labor Department announced sweeping rules Wednesday that could transform the financial advice given to people saving for retirement by requiring brokers and advisers to put their clients' interest first. (Drew Angerer/Bloomberg via Getty Images)
The release continues: “That’s why today, at President Obama’s direction, the Department of Labor is finalizing a rule and related exemptions to ensure that retirement savers get investment advice in their best interest, so they can grow their nest egg and be better prepared for retirement.”
However, John Berlau, a senior fellow with the Competitive Enterprise Institute, a free market think tank, says the regulation will deter companies from serving middle class investors. Berlau cited the effect of a similar regulation in Britain where the unintended consequence prompted financial advisers to focus primarily on wealthy investors.
Further, Berlau said the regulation would discourage larger firms from investing in startup companies.
“The fiduciary rule is like Obamacare for your IRA and 401(k)," Berlau said in a statement. “If you like your brokers and investments, you might not be able to keep them.”
Further, the rule might lack the legal authority, Berlau said, since it is the Securities and Exchange Commission that is charged with regulation of financial activities.
Labor Department spokesman Michael Trupo previously told TheBlaze, “The assertion that this rule would impact media commentators is simply not true.”
However, both supporters and critics of the rule have said that financial talk hosts such as Dave Ramsey and Suze Orman could face regulation under the rule for giving advice about retirement savings.
The Labor Department itself describes the rule this way: “Under DOL’s proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.”
According to the White House, the final rule reflects significant changes after 3,000 public comments and more than 100 meetings.