There’s a lot of discussion about the DOL’s proposed conflict of interest rule which, despite futile attempts by Congress to stop it, looks like it will pass before a new administration comes into office with the rule now at the OMB (Office of Management and Budget). But what’s wrong with a rule intended to protect investors and remove potential conflicts of interest? ICI (Investment Company Institute which represent mutual fund companies) General Counsel David Blass reviews the problems with the DOL rule and potential implications for investors.
The DOL rule broadens the definition of which advisors would be considered a fiduciary not just for DC plans like 401(k)s but also for IRAs. According to Blass, the rule should more narrowly define who is a fiduciary – the broader definition risks limiting advice to investors, particularly those with lower account balances. For example, DC providers currently have call centers and websites to help participants which may have to be severely limited or even shut down under the new DOL rule.
Blass suggests that the DOL rule should have a more targeted definition of fiduciary as well as more targeted disclosure requirements. The economic impact to providers, fund companies, advisors and broker dealers could result in significantly higher fees to investors.
Though more advisors working on a DC plan will have to act as fiduciaries, which could be a good thing for DC plan sponsors, even those advisors may be reluctant to act as fiduciaries to participants when they roll over their money into an IRA. Fees associated with managing personal money average about 1% which is much higher than what is charged a DC plan – a typical $10 million plan might pay their advisor .25%. But advisors working on that plan will not able to charge individuals moving to an IRA more than .25% without a complicated exception.
Many plan sponsors hire a financial advisor not just to help the company but to also advise employees. The DOL rule as now written may limit that access according to the ICI and may severely limit simple educational tools and access to call centers made available by DC record keepers
