Democratic Senators Highlight Costs of DOL Fiduciary Proposal (with Lofchie Comment)

Several Democratic Senators urged the Department of Labor ("DOL") to "ensure that rules related to retirement savings do not work at cross-purposes in a way that could limit investor access to education and increase costs for middle-class Americans." Senators Jon Tester (D-MT), Joe Donnelly (D-IN), Heidi Heitkamp (D-ND), and Angus King (D-ME) submitted the letter regarding DOL's proposed changes to the ERISA definition of "fiduciary." The Senators expressed their concern that "the rule in its current form could stifle access to meaningful investment advice for millions of Main Street investors."

The Senators also recommended that the DOL: (i) maintain a neutral business model; (ii) maintain access to a variety of products in today's marketplace; (iii) provide educational materials to help prepare individuals for retirement; (iv) prevent "significant" leakage at the point of rollover, as "evidenced by GAO's study, '401(k) Plans, Policy Changes Could Reduce the Long-term Effects of Leakage on Workers' Retirements Savings'"; (v) allow financial professionals to engage small business without triggering fiduciary duties; (vi) permit current investors to forgo the proposed process if they so choose; (vii) solicit meaningful input from the SEC and FINRA; and (viii) engage relevant stakeholders, including the Senators' offices, as the rulemaking process continues.

Lofchie Comment: The DOL's rule proposal with respect to fiduciaries has attracted a remarkable range of opposition from buy-side and sell-side market participants, Democratic and Republican elected officials and other regulators. It is unusual for a regulator to proceed with a rule proposal that has attracted criticism from so many divergent sources.

Critics of the rule make a common point: burdens and limitations put on the financial industry are also burdens and limitations put on those served by the financial industry. Expenses imposed on the financial industry must be passed through to customers. Prohibitions put on the financial industry are prohibitions that are also passed through to customers. Those who impose these burdens should be willing to justify the indirect negative effects of their regulations, and not pretend that the effects are not felt by customers. An open honest dialogue about true costs and benefits will lead to better rules.

See: Senators' Letter to the DOL; Senator Claire McCaskill (D-MO)'s Supporting Letter.
Related News: ICI Recommends That DOL Revisit the Best Interest Standard in Its Proposed Fiduciary Rule (with Lofchie Comment) (July 24, 2015); SEC Commissioner Gallagher Attacks DOL's Fiduciary Proposal (with Lofchie Comment) (July 22, 2015); SIFMA Opposes DOL's Proposed Retirement Regulation (July 20, 2015); ACLI Criticizes DOL's Proposed Fiduciary Rule (June 30, 2015).