DOL Fiduciary Folly #298-Higher Cost, Fewer Options

February 25, 2017

The ACA was created to expand insurance, lower costs, and increase options. 

 

Years after its creation we have higher costs and fewer options. 

 

Dodd-Frank was legislation that was to protect against the 'too big to fail', to make sure the banking and lending markets were never compromised by too few options and a few at the top. 

 

Today, the 'too big to fail' make up far more of the market, as small and responsible banks have gone out of business due to the regulatory burden. 

 

The DOL's Fiduciary Rule claims to provide retirement savings with advice that is 'unconflicted.' They claim that lower-cost and higher levels of service will be the results. 

 

And, today we are beginning to see the obvious; the actual results are opposite from those intended.  

 

This is a great article at Trust Advisor that is one of a few that actually looks at some of the costs of the DOL’s Fiduciary Rule on the market.

 

I saw some because the true costs will never be known in terms of government time spent, industry opportunity cost (the time groups like NAPFA could have been promoting their message with the public rather than on this law), and the actual amount of costs that have been passed on to consumers in keeping costs the same or by increasing fees, where the market in recent years had been lowering costs.

 

The true impact and costs of the rule won’t be known for decades, but, it is amazing to read some in the industry who believe there will be no impact.

 

I’ve seen estimates from hundreds to thousands of dollars per year, per year. I’ve heard of hours worth of unnecessary, busy work that advisors will have to perform in order to justify the fact that the client hired them for guidance.

 

Advisory firms are merging at record pace and it is entirely due to the threat of this law. Small and large firms alike do not want the complexity that comes with having to merge, but both the small and large need to gain scale to compete. Gaining scale will mean fewer choices, lesser options for low-cost planning, and advisors having to work longer and for more clients in order to make the same in wages.

 

This is all entirely predictable if one has a basic understanding of logic and economics (which, is logic, much more so that math and modeling).

 

What comes next is less innovation and more government control over acceptable investments (I’ve already heard troubling talk from ‘leaders’ in the fiduciary movement at the need to stop ‘new and untested’ products). We will have another crash. We will be told it was the fault of the market (rather than the prior interventions into the market). We will give up more control over accounts until everyone is in a government managed plan, similar to one that Hillary Clinton’s chief economic advisor has spent her entire professional life trying to push onto the American retirement saver.

 

You may wonder if there is a better solution.

 

I’ve written about potential solutions often here in my blog. They must begin with personal financial planning being central to the goal, rather than the laws we continue to see that try to mandate appropriate product choices. Product choices come after a plan is developed, not before.

 

Next, government needs to create a level playing field. There should be no exemptions for Equity Indexed Annuities – nearly universally agreed upon by true fiduciaries as terrible products that the DOL website actually calls important!

 

Finally, there should be no ‘untouchable’ funds as exists in 401(k) accounts today. End the 401(k) monopoly system and make all 401(k) plans similar to Health Savings Accounts (HSAs) which can be moved to any provider during employment.

 

Advice would flourish as competition increased the number of true fiduciaries beyond any level that we will see under the DOL's misguided and costly mandate.

 

 

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