A Kansas federal judge recently upheld the Department of Labor’s (DOL) fiduciary rule, a victory for the measure as the DOL seeks a delay in the rule’s April 10th implementation date. The White House is exploring ways to amend or replace the measure.
What is the fiduciary rule, you ask? It’s a government mandate that reclassifies all financial professionals who work with retirement plans or provide retirement planning advice into fiduciaries. (A fiduciary is a financial adviser who must always—legally and ethically—act in the best interest of their clients, but cannot earn commissions on products or services they sell like annuities and certain types of insurance.)
While some say this is a much needed change to protect investors, others say the fiduciary rule could hurt people more than it helps. Current rules allow advisers to earn commissions on products they sell to clients, but the fiduciary rule eliminates commissions, meaning that financial advisers would have to make up money in another way. One option is switching to a system that charges fees based on a percentage of the client’s assets invested.
Why should you care? This switch could hurt lower-income individuals and families with fewer assets, who are less profitable to financial advisers. The fiduciary rule incentivizes advisers to help more high-income clients, and could leave low-income employees without valuable retirement advice. Some research shows that the fiduciary rule would cause most people to see average increased costs of 73 to 196 percent because of a shift to fee-based accounts. It could also harm small business retirement plans, which represent more than 9 million U.S households with approximately $472 billion in retirement savings.