Ever since the Department of Labor proposed several years ago to close regulatory loopholes that allow financial firms to offer conflicted retirement advice without having to act in the best interests of the retirement savers who rely on that advice, financial services firms have been nearly apoplectic in their opposition. This is hardly surprising. There is big money at stake, particularly if the rules end up covering recommendations regarding rollovers from 401(k) plans to Individual Retirement Accounts (IRAs).
Recognizing that preserving their ability to profit at customers' expense was not an appealing argument, the firms have cloaked their opposition in concern for low- and middle-income savers who, they say, could lose access to retirement advice if the rule moves forward. Leading the charge has been financial industry lobbyist Kent Mason, of Davis & Harmon LLP. Mason has produced one phony industry-funded study after another purporting to show the devastating impact that DOL rulemaking could have on low- and middle-income savers and small-business retirement plans. Beneath their professional veneer, the studies have one thing in common: They are based on a patently false assumption about the DOL's expected approach to rulemaking.
This line of attack on DOL rulemaking suffered a major setback in recent weeks when a memo presenting a very different picture of industry practices was leaked to the press. Reportedly written by high-ranking White House economic advisers, the memo cites peer-reviewed academic studies to arrive at a conservative estimate that retirement savers lose out on at least $6 to $17 billion a year as a result of perverse incentives for financial firms to act in ways that are harmful to their customers' interests. Meanwhile, a group of consumer, worker, and senior groups have increased their efforts to build public support, launching the SaveOurRetirement.org website to educate the public about the need for DOL rulemaking to fix this costly problem.
Mason has fired back with two memos to members of Congress, one criticizing the White House memo and the other criticizing the SaveOurRetirement.org website for failing to consider the harmful impact DOL rulemaking could have on low- and middle-income individuals and small business retirement plans. Mason apparently didn't read very carefully before jumping to this conclusion, or conveniently ignored information that undercut his claims, since both the website and the memorandum directly address that concern and reject it as unfounded. Indeed, the website devotes an entire section to refuting the "unrefuted economic analyses" that Mason accuses us of ignoring.
To be perfectly clear, we have not seen the DOL rule proposal. Neither, presumably, has Mason. But the authors of the White House memo apparently have. They state quite clearly that the premise of the middle-class-access argument, that DOL would require firms to eliminate all conflicts of interest, is false: "The proposal allows businesses to continue using existing, conflicted business models, but requires that they adopt additional consumer protections such as ensuring advisors follow a best interest standard, enacting policies and procedures to manage and mitigate conflicts of interest, and refraining from certain self-dealing transactions." Mason himself states that a best interest standard is "not controversial."
So why aren't Mason and his clients celebrating? This is, after all, precisely the balanced approach they have claimed they were looking for from DOL. Why are they still trying to beat back this regulatory proposal before it can even be put out for public comment? Perhaps it's because concern for low- and middle-income savers was never anything more than a phony pretense to get members of Congress to weigh in against a rule they haven't even seen.
We hope that the congressional offices that receive these memos will recognize them for what they are: a cynical ploy by financial services firms to preserve their ability to profit at the expense of vulnerable workers saving to afford a decent standard of living in retirement.