Workers and Efficient Retirement Saving: Why 'Fiduciary Rules' Are Not Enough

“There are some powerful interests aligned against the new Fiduciary Rule, who will insist the only good rule is no rule at all. If your business model rests on bilking people out of  hard-earned money in retirement plan accounts…..you will not like this Rule……”.

U.S. LABOR SECRETARY THOMAS PEREZ

 “We show that conflicts of interest matter, but appear limited to a small fraction of advisors. Our estimates suggest that correcting advisors’ misguided [investment] beliefs…..may reduce  the cost of investment advice more…..”.

PROFS. LINNAINMAA, MELZER, AND PREVITERO

Fiduciary Rules vs. Investment Beliefs

Good work is being done around the world to create rules that ensure financial advisors act in their clients’ best interest when providing and implementing investment advice. This Letter has long advocated these efforts, arguing that ‘asymmetric information’ between the buyers and sellers of investment advice creates the opportunity for advice sellers to take advantage of advice buyers by charging them more than the value of their advice is worth. Much of the developed world already has rules prohibiting this mis-selling in place. Recently, the USA followed suit with its Department of Labor ’s ‘Fiduciary Rule’, which is to be fully implemented by January 1, 2018.ⁱ  A similar rule-setting process towards reducing the impact of conflicting interests is underway in Canada.ⁱⁱ