the fiduciary front

The Fiduciary Rule Lives On in Texas, Only to Die in Washington, DC

Personal Capital Was There to Witness the Events

WASHINGTON, February 15, 2017 /PRNewswire/ — Yesterday, Chief U.S. District Judge of the Northern District of Texas issued a “stinging court defeat” to the lobbying arms of the big banks – the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute, and Securities Industry and Financial Markets Association – by upholding the “Fiduciary Rule.”

Today, administrators in Washington announced they would delay implementation of the rule by 6-12 months and then seek to repeal it altogether.

“This is a shootout at the OK Corral,” said Bill Harris, CEO of Personal Capital. “I was not there in Texas to witness the rule’s heroic survival, but I am here today in Washington witnessing it’s quick and efficient execution. And with it’s presumed death, so goes the retirement prospects of families across the nation. The only thing that gives me hope is Mark Twain’s famous quip, ‘rumors of my death are greatly exaggerated’.”

The Fiduciary Rule requires firms providing retirement accounts to do so in the best interest of the customers, not of the firms themselves. The Department of Labor, which has jurisdiction over the retirement accounts of American workers, developed this “no conflict of interest” rule over six years with input from consumers and financial firms. It is scheduled to go into effect in April 2017.

Chief U.S. District Judge Barbara Lynn upheld the rule, shooting down each seven challenges including that it limits the free speech of sellers of retirement accounts: “At worst, the only speech the rules even arguably regulate is misleading advice.” The Labor Department prevailed over challenges from the financial industry. “Justice was done in Texas,” said Harris. “As one of the only financial firms advocating for working families and retirees by supporting the Fiduciary Rule, Personal Capital applauds this courageous ruling.”

Nevertheless, because of changing objectives in Washington, the Labor Department quickly reversed course and attacked it’s own rule – first requesting a stay of the Texas ruling and then announcing it would delay the rule’s implementation. “The Labor Department – once a mighty gunfighter for the nation’s 125 million workers – turned tail and ran in the face of Wall Street’s artillery,” said Harris.

Harris has spoken out before in support of the Fiduciary Rule and the benefits of Section 1033 of the Dodd Frank act. So have the clients of Personal Capital, over one thousand of whom have expressed strong opinions on the necessity of a rule protecting their financial future.

Fiduciary Rule Could Save 30% of Retiree’s Nest Egg

Without the Fiduciary Rule, conflicts of interest will cost investors their hard-earned savings in commissions and high, often hidden, fees. Specifically, Wednesday’s ruling quotes Federal Register Fiduciary Rule Definition:

The bottom line is that without an appropriate fiduciary responsibility, most financial institutions have no reason to stop exploiting their customers inability to cope with the increasing complexity of investment products.

“…today’s marketplace [commissions give]…advisers a strong reason, conscious or unconscious, to favor investments that provide them greater compensation rather than those that may be most appropriate for the participants…an ERISA plan investor who rolls her retirement savings into an IRA could lose 6 to 12 and possibly as much as 23 percent of the value of her savings over 30 years of retirement by accepting advice from a conflicted financial adviser.”

Based on a study of Personal Capital users’ own data and the fees they are currently paying, unnecessary fees and conflicted advice leads to over 30% fewer assets for their retirement. For the average Personal Capital user, this means hundreds of thousands less in retirement savings and a substantial reduction in retirement readiness.

Fiduciary Rule Protects Workers and Retirees

The Fiduciary Rule is also necessary to protecting investors who must make complex decisions about their own investments where the onus of securing a well-funded retirement is largely placed on the individual. Wednesday’s ruling quotes the DOL in saying:

“[A]t the same time as individual investors have increasingly become responsible for managing their own investments, the complexity of investment products and range of conflicted compensation structures have likewise increased. As a result, it is appropriate to revisit and revise the exemption to better reflect the realities of the current marketplace.”

Broker Incentives Must Be Changed

The bottom line is that without an appropriate fiduciary responsibility, most financial institutions have no reason to stop exploiting their customers inability to cope with the increasing complexity of investment products. The DOL has specifically reviewed studies conducted around mutual funds to assess the conflicts to consumers without a Fiduciary Rule:

“Broker-sold mutual funds provide an incentive to brokers to sell their products, but the record reflects that conflicted brokers “reinforce erroneous beliefs about the market” and “guide people towards high-fee funds.”

Personal Capital has always been a fiduciary of its customers’ money. Harris urges every financial institution with responsibility for a consumer’s life savings to stick up for the customer’s best interest, not for their own bottom line. “On with the good fight for the Fiduciary Rule,” says Harris.




About Personal Capital
Personal Capital is the smart way to track and manage your financial life. Personal Capital combines award-winning online financial tools that provide unprecedented transparency into your finances with personal attention from licensed financial advisors. The result is a complete transformation in the way you understand, manage and grow your net worth.
Disclaimer: Personal Capital Advisors is an SEC registered investment advisor. Any reference to the advisory services refers to Personal Capital Advisors. SEC registration does not imply a certain level of skill or training.