Commentary: DOL Rule Harmful for Americans

Commentary

It was satisfying this week that five different groups filed complaints over the Department of Labor fiduciary rule. The lawsuits were filed in district courts in Texas, Kansas and DC.

The variety of the legal venues (and judges) and number of plaintiffs will, hopefully, be our best chance for a positive outcome.

If any of the litigants receive their requested injunction, this Rule will be delayed until the next presidency. The delay and arguments will likely pressure Congress to take the steering wheel back from the DOL and craft real consumer legislation that unburdens savings from excessive fees and promotes best-interest advice.

Americans for Annuity Protection (AAP) is proud to have played an important role in developing the effective arguments the complaints cover and likely force the courts to take action against this harmful rule. Let’s cover why this rule is so very dangerous for American savers.

Consumers Deserve Advice that Doesn’t Cost them $$$

Because the rule favors fee-only advisors, most of middle America will have to sacrifice emergency cash to pay a planner and won’t be able to fix a necessary appliance or pay their medical co-pay.

After the planner helps you pick retirement products, the consumer most likely will have to pay additional, ongoing fees for the products purchased. Fee-based planners can play a critical role in retirement planning, but only if you can afford the extra $800 to $1,0001 to pay them or if you have the necessary savings to be served by them.

There have been numerous reports by advisor firms and industry experts that say most of Americans with accounts lower than $50,000 will be cut off from professional advisors and have to go it alone or trust their savings plan to a robot. Either way, consumers pay for it with no professional advisors to create a plan that is individualized to their unique needs or getting by with under-underperforming, one-size-fits-all money management options.

Consumers Deserve Low-Cost Annuity Options to Turbo-Charge Savings

The most popular annuity consumers choose today is a fixed indexed annuity which pays on average 6.3 percent commission, according to the Wall Street Journal. That translates to a consumer cost of .16 percent a year (assuming 40 years) or .6-.9 percent a year if kept through a typical surrender. Compare that to most 401(k) plans that cost consumers between 1 and 1.5 percent, not counting individual fees based on fund choices.

A study by the Center for American Progress (CAP) concluded that "the corrosive effect of high fees” in 401(k)s force Americans to work years longer than necessary or planned. The typical American worker, earning a median salary starting at age 25, will pay almost $140,000 in 401(k) fees over their lifetime. Savers in smaller plans will pay over 165,000. That's equal to more than two and a half years' worth of a typical household's earnings.

CAP proposed creating a new type of plan that combines the best elements of 401(k)s with the best elements of pensions to address the inherent weaknesses of high-fee, self-directed retirement plans. That is exactly what a fixed annuity is - a cost-efficient defined contribution plan, that insures against market losses and provides a guaranteed income payment for life like the old defined benefit pension plans.

Consumers Deserve Accurate Data and Informed Analysis

Page 172 of the Regulatory Impact Analysis states that “the most relevant studies identified by the Department” were eight studies dealing exclusively with mutual funds.

Not one study was conducted on the rule’s impact to consumers seeking annuity advice - advice that protects consumer’s savings from market risk and provides guaranteed income opportunities. The analysis states that their information about annuities comes from “the media and lawsuits” and no empirical evidence was produced that could demonstrate any losses from fixed annuities for conflicted advice.

Congress needs to demand that a rule impacting millions of Americans ability to protect their savings must provide an impact analysis on all the products it will affect. That analysis must be qualitative, comprehensive and irrefutable.

Consumers Deserve Transparent Advice with Easy-to-Understand Disclosures

Disclosures are often too long, too legal, and too confusing to read. The rule adds mountains of additional disclosure requirements including; BIC contract disclosures, point-of-sale disclosures, website disclosures with requirements for quarterly updates, and disclosures necessary for proprietary products and third-party payments.

The department states that disclosures don’t mitigate conflicts, so why pile on mountains more? Tons of paper will not help consumers understand their retirement options and encourage saving. Instead, more paper and legalese will cause even more polarization from saving or from making a prudent decision on how best to save.

The advice under the rule will not be transparent or clear. Consumers who work with “variable fee” advisors will receive advice that follows the Best Interest Contract Exemption - one set of standards. Consumers who work with a “level-fee” advisor will receive advice that is under a second set of standards - dubbed “BICE Lite.”

Consumers purchasing fixed rate annuities IRAs or working with their 401(k) fiduciary will have yet a third and fourth set of standards. The rule does nothing to provide consumers a transparent and easy to understand standard of care.
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AAP maintains that quality income planning is best delivered by qualified, trusted and experienced professional advisors who understand the importance of a savings plan with cost-efficient products that provide growth and guaranteed income. While annuities can and do provide an effective way to accumulate interest, other products certainly do as well.

However, only annuities, can fill the guaranteed income gap that most Americans will experience because of the decline in social security and pension payouts. Americans for Annuity Protection is determined that annuity advisors are available to provide this necessary service and that advice will not be at the expense of the consumer.

Kim O’Brien is the vice chairman and CEO of Americans for Annuity Protection. She has 35 years of experience in the insurance industry. O’Brien served The National Association for Fixed Annuities (NAFA) for almost 12 years and led the organization to defeat the SEC’s Rule 151A.

Contact Kim at [email protected].

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