Your retirement plan; A behind the scenes heated debate

The Department of Labor (DOL) is moving closer in its goal to impose a fiduciary standard on employer sponsored retirement plans. Reputable critics in favor of the standard, like the Financial Services Institute, SIFMA and the U.S. Chamber of Commerce all express support for the Labor Department's goal of improving the quality of advice provided to retirement plans and their employee consumers. For example, the Financial Planning Coalition, a group representing the CFP Board, FPA and NAPFA, calls an expanded fiduciary standard "necessary and appropriate."

What is the Department of Labor’s Reasoning?

The DOL’s concern about conflicts of interest that could compel advisors to put their interests ahead of those of their clients, has led to some fierce opposition from the Brokerage Industry. In defending the regulation, DOL officials have explained that financial advisors should remain free to offer advice that’s free of conflicts, such as through a fee-based arrangement common to RIA practices. 

So Who Is Against This?

The Brokerage Industry, which currently does not hold itself to a fiduciary standard, would be “dug up” from this area of service.  Because of the large financial incentives, most employer sponsored retirement plans are sold under the brokerage industry’s commission model with little or no transparency to employee consumer.  No ongoing advice is required and employees are usually left in the dark with regards to help in managing their retirement plan.

Will the Fiduciary Standard Improve or Harm Employer Sponsored Plans?

The fiduciary standard of care requires that a financial adviser act solely in the client’s best interest when offering personalized financial advice.   Under federal law, in particular the Investment Advisers Act of 1940, “investment advisers” are regulated by the Securities and Exchange Commission (SEC) or appropriate state authorities and are required to provide services to their customers under the fiduciary standard. The Broker-Dealer industry works under the “suitability standard of care” which requires their recommendations be suitable even if may or may not be in the client’s best interest. CERTIFIED FINANCIAL PLANNER™ professionals providing financial planning services also must abide by the fiduciary standard, as defined by CFP Board. Even if adopting this higher professional scrutiny and standard doesn’t improve Employer Sponsored Plans, how would it harm them?