Warren’s Fuzzy Math On Fiduciary Rule Doesn’t Add Up, Analyst Says

Sen. Elizabeth Warren’s “Retirement Ripoff Counter” is a gimmick filled with misleading figures to prop up a faltering fiduciary rule, a leading annuity consultant said.

Warren, D-Mass., appeared Wednesday with union and consumer groups at a press conference in opposition to a 60-day delay of the Department of Labor fiduciary rule. The delay published this week pushes the effective date from April 10 to June 9.

But many analysts expect the new DOL leadership to rewrite Obama-authored rule or delay it further.

Even the 60-day delay is costing investors $3.7 billion over 30 years, Warren claimed. She was joined at the Washington press conference by the AFL-CIO, Americans for Financial Reform and the Consumer Federation of America.

"That money matters – it's the difference between retiring with dignity and fighting to stretch every dollar as far as it will go,” Warren said. “President Trump and Republicans in Congress may want to make it easier for big banks to cheat their customers, but we're fighting back for a fair marketplace and to protect families' retirement savings."

DOL's Shaky Data

Rule opponents are using financial data introduced by the DOL, which claims conflicted advice costs investors $17 billion annually.

That figure is derived from “a back-of-the-envelope look the Council of Economic Advisors did,” said Jack Marrion, longtime annuity consultant. “They assumed there were $1.7 trillion of IRA assets invested in products that ‘generally provide payments that generate conflicts of interest,’ which means mutual funds with commissions.”

The DOL pegged the "conflicted advice" costs at 1 percent a year, which is where they came up with the $17 billion figure.

The DOL cited three studies for its 1 percent loss claim, Marrion said, but only one of them even partially supports the conclusion. A 2012 study by the National Bureau of Economic Research did show that a group of investors represented by brokers earned 0.9 percent less a year than a do-it-yourself group.

The retirement plan gave participants two options: they could meet and work with a broker, or they could pick their own investments on their own, Marrion said.

“The participants who chose to use a broker were younger and less experienced,” he noted. “When asked why they chose the broker option, 70 percent said the ability to meet with and talk to a broker was important to them. This brokered group recognized they needed professional help and chose to pay for it.”

To use the NBER study assumes that the typical investor invests the same as the study participants, and, more importantly, ignore the fact that these employees had a choice and chose to use a broker, Marrion said.

Study Parameters

In his first action on the DOL rule, President Donald J. Trump directed the DOL to seek a delay to assess whether the rule:

• Harmed or is likely to harm investors due to a reduction of access to certain retirement savings products, accounts or information.
• Resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees.
• Is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.

While the DOL uses the delay to work on these questions, analysts say new study data could make its way into the mix.

Meanwhile, many companies involved in the distribution of retirement investment products have already implemented many changes called for under the fiduciary rule.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.

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