Yesterday, the U.S. Court of Appeals for the Fifth Circuit decided to vacate the Department of Labor’s fiduciary rule, which requires financial professionals to act in the best interest of retirement savers in providing investment advice.
This commonsense rule has survived repeated court challenges, but special interests with deep pockets can persevere until they get the result they want. All this proves is how much conflicted advice contributes to Wall Street profits at the expense of retirement savers.
The plaintiffs, who represent the financial industry, claim that the court’s legally flawed decision will preserve access to low-cost financial advice. But what they are clearly hoping won’t be noticed is that bad advice is worse than no advice.
Every month the rule is vacated in the Fifth Circuit (Louisiana, Mississippi, and Texas), retirement savers in those states will lose $133.8 million over the next 30 years due to the lasting effects of receiving conflicted advice (that is $16.9 million in Louisiana, $6.0 million in Mississippi, and $110.9 million in Texas). If the same faulty analysis applied nationwide (though no other courts have adopted it), every month the rule is vacated will result in retirement savers nationally losing $1.9 billion over the next 30 years.
The rule was exhaustively researched and painstakingly drafted by the Department of Labor to address losses incurred by workers saving for retirement who are steered to higher-cost or underperforming investments by financial professional presenting themselves as disinterested advisers. The rule prohibits common practices such as steering clients toward investments that pay the adviser a commission but provide the client a lower rate of return. Such conflicted advice caused enormous losses for workers saving for retirement.