Senator Elizabeth Warren (D-MA) wrote to Acting Secretary of Labor Edward Hughes to urge him not to delay the April 10, 2017 effective date of the DOL’s Fiduciary Rule. The letter was a response to President Donald J. Trump’s Memorandum on the Fiduciary Duty Rule, released on February 3, that directed the Secretary of Labor to examine the rule to determine whether it may “adversely affect the ability of Americans to gain access to retirement information and financial advice.” In her letter, Senator Warren asserted that “a decision to rescind . . . or to delay implementation of this rule . . . would rip billions of dollars in retirement savings from the pockets of hardworking Americans and put it straight into the hands of giant financial institutions.”
Senator Warren summarized letters received by “leading” finance companies that support the implementation of the rule as “good for workers.” Senator Warren also observed that these “companies have made what [one company] describe[d] as ‘significant capital investments’ in actively preparing for the rule’s implementation.” She argued:
“To be sure, not every financial company shares this full-steam-ahead support for the DOL rule . . . [b]ut the overwhelming voice of financial firms is clear: they support the goals of this rule. . . .”
Lofchie Comment: Senator Warren’s letter provides some useful information, but judging by the excerpts she cited from the letters she received, the information is tailored closely to her views and may not represent a fair reading of companies’ full letters. Even so, her claims merit scrutiny:
1) Regarding the claim that the Fiduciary Rule will save investors $17 billion: this is highly speculative. One could just as easily claim that investors would lose the same amount of money if they were (a) deprived of access to investment advice, and (b) encouraged to move to fee-based accounts, since many investors might be better off with transaction-based accounts.
2) It is true that some firms favor the adoption of the Fiduciary Rule, especially those that will benefit from it as a matter of competitive advantage. Other firms oppose it because they will be injured by it as a matter of competitive advantage. Senator Warren prefers quoting the former to quoting the latter.
3) Senator Warren quotes a number of firms as favoring the “core objective” of the Fiduciary Rule (or language to that effect). These firms, undoubtedly, also support mom and apple pie. Good rulemaking is about more than vaguely good intentions.
4) That firms are prepared to comply with the rule is not a compelling argument. If firms want to stay in business, they have no choice but to comply with government directives. That says nothing about whether the directive is sensible.
Ultimately, the problem with the Fiduciary Rule is this: in the case of securities transactions, the SEC should be responsible for making rules concerning suitability. Having one set of rules adopted by the SEC as to the transactions for an individual’s personal account, and another set of rules adopted by the DOL as to transactions for an individual’s IRA, is simply no way to run a regulatory system.