Obama Retirement Savings Rule Faces Big Challenge
A regulation known as the fiduciary rule was finalized by the Department of Labor back in April. Now, financial industry trade groups are taking to the courts to block it.
Today, The Wall Street Journal reported that the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA) are preparing a lawsuit to block this rule. Sources said that the lawsuit could be filed as early as this Wednesday. (Source: “Obama Retirement-Savings Rule Faces Industry-Led Court Battle,” The Wall Street Journal, May 31, 2016.)
The new rule requires brokers and other financial professionals working on retirement accounts to act as fiduciaries. This means they have to act in the best interests of their clients when giving advice on money in individual retirement accounts (IRAs) and 401(k)s. Previously, brokers were only required to give suitable recommendations.
The goal of this new regulation is to help investors make the most cost-effective decisions regarding their retirement savings accounts. This could also mitigate the conflict of interest problem when brokers give clients recommendations.
For instance, under the looser standard, if brokers can get a sizable commission from selling high-cost mutual funds, they would have more incentive to recommend those as opposed to, say, low-cost exchange-traded funds (ETFs).
Among the heightened retirement advice standards, there is also a provision that allows investors to file class-action lawsuits when they believe an advisor fails to follow the new rule. Opponents of the new rule, though, say this would expose the $14.0-trillion market to expensive litigation and the rule-makers do not have the congressional authority to include such a provision.
Furthermore, opponents argue that the new rule would make it more difficult for small investors to get advice on where to put their retirement savings. Last month, Ann Wagner—one of the leading congressional opponents of the new rule—said, “It is clear that this top-down, Washington-knows-best power grab only hurts those they claim they will protect—low- and middle-income families who are looking for sound investment advice in the midst of a savings crisis.” (Source: “House Republicans Vote to Block New Rule on Retirement Advice,” The Wall Street Journal, April 28, 2016.)
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.