The Department of Labor’s (DOL) fiduciary rule for financial advisors, which went into partial effect on June 9, is causing hardships for retirements savers, according to a new study from the Securities Industry and Financial Markets Association (SIFMA).
The study, conducted for SIFMA by Deloitte & Touche, polled 21 SIFMA member financial institutions who represent 43 percent of US financial advisors and 27 percent of the retirement savings assets in the market. It found 53 percent of study participants limited or eliminated access to advice brokerage for retirement accounts as part of their approach for complying with the fiduciary rule, which requires financial advisors to act as fiduciaries for their clients. This has impacted an estimated 10.2 million accounts and $900 billion in assets under management. Retirement assets have shifted to fee-based or advisory programs because of those limitations, SIFMA said.
Further, 95 percent of study participants indicated that they had reduced access to or choices within the products offered to retirement savers to comply with the rule. Products affected include mutual funds, annuities, structured products, fixed income, private offerings, and more, impacting approximately 28.1 million accounts.
Also, survey participants said they spent approximately $595 million preparing for the initial June 9, 2017, deadline and expect to spend over $200 million more before the end of 2017. Multiplied industry-wide, that equates to $4.7 billion in costs relating to the compliance with the rule, exceeding the DOL’s 2016 estimated start-up costs. The ongoing costs to comply are estimated at over $700 million annually, said SIFMA.
SIFMA President and CEO Kenneth Bentsen, Jr., relayed the results of the survey, as well as SIFMA’s concerns, to the DOL
“Retirement savers should be able to choose the type of investment products and services they want when saving for their future,” Bentsen said in a letter to the DOL. “Unfortunately, the DOL’s Rule has made retirement saving harder for many Americans, resulting in the government in effect dictating what products and services they can choose. We welcome the opportunity to provide recommendations on improving the rule bolstered by new evidence of the Rule’s harmful impact. We continue to support the Securities and Exchange Commission acting to establish a best interest standard and believe that the DOL’s misguided rule is not only harmful to investors but also inconsistent with the administration’s stated priorities and must be rescinded or substantially revised.”
SIFMA asked the DOL to delay the Jan. 1, 2018 applicability date, at least until the DOL can complete a comprehensive review of the rule and undertake revisions, if necessary, as directed by President Trump in a February 3, 2017, memorandum. If the review concludes that the rule has had harmful effects on investors and the market, revisions cannot be completed in time.