President Obama’s plan to reform retirement savings could more than double the cost of investment advice for many savers. That’s why Democrats on Capitol Hill are now demanding a rewrite and even Hillary Clinton still hasn’t endorsed it. Meanwhile, Mr. Obama is helping state governments compete against the private financial advisers his rule punishes.
The ostensible pitch for the Labor Department’s rule is that when savers are rolling over money from a 401(k) retirement plan into an Individual Retirement Account, they should be advised only by people committed to acting in their “best interest.” It sounds great, except serving as a “fiduciary” in this manner comes with so many rules and carries so much potential liability that few people will do it unless investors pay them a lot of money.
If costs are irrelevant, many would argue it’s in the best interest of a driver to travel in a Mercedes rather than a Chevrolet. But in the real world consumers like having options. For the typical investor, brokers provide a useful service and even if they aren’t fiduciaries they too are heavily regulated to make sure they recommend investments that are “suitable” for the client.