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DOL Opponents Are Motivated By Self-Interest

07/21/2015 05:08 pm ET | Updated Jul 21, 2015
  • Dan Solin Author of the Smartest series of books

The securities industry is all atwitter at the prospect of having to put the interests of retirement plan participants above its own. It's marshaling its massive resources to fight a rule proposed by the U.S. Department of Labor (DOL) that would require all advisors to be "fiduciaries" to the employees saving for retirement in these plans.

According to a recently published report, President Barack Obama is standing firm in his support of this rule. He stated his goal, which seems modest, as follows: "If they're advising you on how you should save your money they should be looking out for you, not for somebody who's selling a product that may not be best for you."

It would take a really creative mind to fight this logic. In fact, I believe the DOL rule should be expanded to require anyone who provides financial advice to act as a fiduciary to their clients, and not be limited only to retirement plans.

Protection of economic self-interest

Those who oppose this common-sense rule do so under the pretense of concern for the welfare of investors. I suspect their real agenda involves protecting their economic self-interest. One opponent is Kim O'Brien, the CEO of Americans for Annuity Protection, a lobby for insurance investment products.

I can understand her group's position. Advisors who are legally required to put the interests of their clients first would have to think twice about recommending most annuities and other "insurance investment products," since many of these "investments" are high-commission securities that benefit the seller more than the investor.

Tax-deferred variable annuities are a product commonly peddled by insurance companies and recommended by brokers. Craig McCann, who holds a Ph.D. and formerly served as a senior economist for the SEC, co-authored a white paper analyzing these products. His conclusion was sobering:

"Annuities stand out as the investment most likely to be unsuitable since in virtually every instance, the investor would have been better served by mutual fund or a portfolio of individual stocks. That variable annuities hold more than $1 trillion in assets is a testament to the powerful incentives created by the insurance industry with generous commissions and the massive fraud they engender."

The fiduciary rule won't discourage small employers

Brad Campbell, a former Assistant Secretary of Labor, believes the proposed fiduciary rule would discourage small employers from offering savings plans. The rule does have a provision requiring that even advisors to 401(k) plans with fewer than 100 participants and less than $100 million in assets must still act as fiduciaries. But will it dissuade small employers from providing such plans?

I interviewed Joe Goldberg, Director of Retirement Plan Services at Buckingham, a registered investment advisor (RIA) firm with a large retirement plan practice, and The BAM ALLIANCE. (Full disclosure: I am affiliated with Buckingham and The BAM ALLIANCE.) He told me Buckingham and BAM Retirement Solutions together advise about 800 retirement plans in that "small employer" category and have been "bringing a competitively priced solution that adds value for both participants and plan sponsors to this market segment for more than 15 years." Buckingham accepts fiduciary responsibility for all the retirement plans and individual clients it serves.

Goldberg noted that there are "thousands of advisors who have no problem serving as fiduciaries to plans of this size."

Greater public awareness

The DOL's proposed rule and the ensuing debate over it have already had one beneficial effect. Goldberg said he is getting inquiries from retirement plans asking whether firms will agree in writing to serve in a fiduciary role. These inquiries further state that a refusal to agree will disqualify a firm's proposal from further consideration.

Don't believe the industry

Here's the bottom line: The only reason the securities industry opposes the fiduciary rule is that putting the interests of the client first is not in its own best economic interest.

Don't believe any of their lame justifications.

2014-04-01-Hiresfrontbookcover.jpgDan Solin is a New York Times bestselling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read.

The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.

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