On April 20, 2015 the Department of Labor officially published a proposed rule change in the federal register.  To put the matter in dollars and cents is approximately $17 billion dollars per year, according to one estimate by the White House council of economic advisors.  The proposed plan seems simple enough, but whenever $17 billion dollars is at stake, many voices on both sides of the debate will weigh in and drown out that which seems simple.  To add urgency to the matter, over 10,000 people per day are slated to retire over the next 15 years.  Most particularly, the rule would require that retirement advisers give investors advice that is in the client’s best interest.  The rule itself is called the “conflict of interest” proposed rule.  Another name for the client’s best interest is the “fiduciary rule”.  Registered-Investment advisors are already held to the higher standard, while brokers-dealers are held to a lower, “suitability” standard.  


The main critic of the proposed rule, not surprisingly, is the very industry who stands to have its ox gored by the proposed regulation.  One trade group, representing broker-dealers, banks and asset managers argues that the data used to support the conclusion that the rule will accomplish its intended goal is flawed.   The same trade group further argues that there is a serious risk of “unintended consequences” in the form of driving out a large number of investors.  

On October 28, 2015 the House of Representatives passed a bill aimed at blocking the proposed rules.  Entitled the “Retail Investor Protection Act”, it is not likely to be signed by President Obama and, as judged by the 245-186 vote, not likely to be able to overcome a presidential veto.  One supporter noted that “the fiduciary rule will take away investment advice from hundreds of thousands, if not millions of low to moderate income people.”


Supporters of the rule cite the obvious and self evident conclusion that those who advise you on your financial decisions should take your best interest into account and not some compromise which would allow for only “suitable” advice.  Furthermore, allowing for advice when the broker profits from creates inherent conflicts of interest.  In one widely discussed Washington Post article, a former Department of Labor economist contacted nine firms to elicit advice on how to handle his federal retirement Thrift Savings Plan.  Eight of the nine gave him advice that was clearly against his best interest.  The same article notes that in 2013 alone, workers pulled $10 billion dollars alone.  For federal employees, the cost between their default thrift savings plan and the average 401(k) plan is approximately 20 times as much.  

Protecting your nest egg for retirement should be a top priority, which should be revisited periodically.  Given the current state of the law, with all of the various claims on both sides and a potential change in the law, it is best to consult with an experienced contact an attorney to help determine for yourself what is in your best interest.  

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