A new report by a consulting firm paints a dire picture of the potential impact of a proposed rule establishing a fiduciary standard for investment advisors selling products to IRA holders.
The study by management consulting firm Oliver Wyman – "Assessment of the impact of the Department of Labor's proposed "fiduciary" definition rule on IRA consumers" – says that if the rule proposed by the Department of Labor's Employee Benefits Security Administration is imposed, small investors interested in opening an IRA would have less access to investment professionals for guidance and support, making it less likely that they would open an IRA.
The study also found that, under the proposed rule, many IRA holders would have reduced choice of investment professional, because over one-third of client-facing financial professionals in the industry would not be licensed to help retail investors with their IRA account needs.
Another finding was that the brokerage IRA investors who could be served in an advisory model would likely face increased costs as a result of the rule-driven change.
Other findings were that 18 million small IRA investors would lose access to their investment professional if a fiduciary standard was imposed.
The study found that nearly one million fewer new IRAs would be opened each year; that small businesses could stop setting up new 401(k)s.
The report estimated that the overall impact would the loss of $240 billion in lost retirement savings over the next 20 years.
EBSA, which oversees ERISA, called for expanding the definition of "fiduciary" for retirement-plan purposes, in a rule proposed last year. However, it withdrew the rule last September under withering pressure from industry and members of Congress from both parties.
EBSA officials requested access to the Oliver Wyman study as part of their efforts to include a comprehensive economic impact study as part of a revised proposed rule. They also asked other interested parties, including trade groups representing people who sold these products, to provide data as to possible economic impact of such a rule.
The report was first prepared by Oliver Wyman last April at the request of 12 financial firms who have retained Davis & Harman, a Washington law firm, to represent their interests on the EBSA issue.
