The Labor Department is working to follow President Trump’s Executive Order calling for a delay of the Fiduciary Rule, but the clock is ticking and time is of the essence. Failure to delay the rule by April 10, just under a month from now, means everyone but the millionaires are in trouble.
Grandma, for example, relies on a financial adviser to guide her through investments and to make sure she doesn’t outlive her money. But if there’s no delay by April 10, she’ll have to start talking to a robot on April 11 for her investment advice.
That’s because the Fiduciary Rule would add on new layers of bureaucracy and end many relationships savers currently have with their human financial advisers. Most middle-class Americans right now can buy and sell securities by paying a commission – or fee. This is called a brokerage account and is an affordable way for savers to get professional advice at a small price, particularly those who buy and hold for retirement.
But the Fiduciary Rule will fundamentally change how major companies in the retirement advice industry can conduct business. Merrill Lynch, JPMorgan, Capital One and Commonwealth Financial have all said they’ll be forced to end commission relationships for Individual Retirement Accounts (IRAs). IRA holders will instead have to get help online – called “robo-advice” –, unless they have saved enough for human advice, which may require meeting account minimums and paying an ongoing fee calculated as a percentage of assets held in the account. That fee won’t be cheap.
For smaller account holders, which describes most middle-class Americans, Merrill Lynch will only be able to provide robo-advice, to those customers. MetLife and AIG have said complying with the Fiduciary Rule is too expensive and cumbersome, so they’re going to sell their advisory businesses.
Some companies are staying in the brokerage business, but not without a cost. Edward Jones and Stifel must increase account minimums to offer commission-based advice. For Edward Jones clients, that account minimum is $100,000.
Everyone from Grandma to middle class families trying to juggle savings for college and retirement will be impacted by this rule in a few short weeks. President Trump recognized this and directed the Labor Department to stop the rule from going into effect while administration figures out a better way to make affordable investment advice available to all Americans.
What concerns us must though is the Fiduciary rule is a typical government solution in search of a problem. This top down, one size fits all rule will eliminate choice for consumers, hurt business, and eliminate a popular way that many people navigate the byzantine investment world. While I have no problem using self-help systems, for now, there is no reason others should be shut out of this market.
Staff at the Labor Department and other agencies must work quickly so that people of average means are not hamstrung from their planning- staff should delay this rule so everyone can go back to saving so they can live comfortably in their golden years.
Stephen DeMaura is President of American Potential.