Compliance November 18, 2015

Coalition Tells Congress to Stop Trying to Thwart DOL Rule

Staunchly supporting the DOL’s fiduciary proposal, the Financial Planning Coalition calls out recent legislative stall tactics.
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A letter from the Financial Planning Coalition (FPC) urges members of Congress to reject legislative proposals designed to stall the Department of Labor’s (DOL’s) fiduciary rulemaking. 

The letter comes a week after a statement outlining several “investor-friendly” principles that four congressional representatives contend would help to create a bipartisan legislative solution. But the FPC calls the legislation unnecessary and says it “would derail, not advance, a final rule to require retirement advisers to serve their clients’ best interests.”

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The center of the FPC’s argument is that the principles cite disclosure of conflicts of interest but not the obligation to mitigate any compensation practices or incentives that give rise to these conflicts, what it calls “a fundamental component” of the fiduciary standard.

The coalition defends the DOL’s rulemaking process, calling it “comprehensive, deliberative, fully open and transparent,” as well as “extensive and robust,” not to mention taking place over “a lengthy five-year period” and says it is “working precisely as intended. Given that the FPC has approved the DOL’s intent from the beginning of this round of the fiduciary rulemaking process, the letter comes as no surprise and concludes, “We urge you to reject this or any other legislative proposal—whether stand alone or in the funding bill—that will serve to delay or defeat the promulgation of a final DOL fiduciary rule.” 

The coalition comprises the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

NEXT: An opposing view

In contrast, the American Council for Capital Formation (ACCF), an advocate for American business, has issued a paper highly critical of the DOL’s rule. “Will Proposed DOL Fiduciary Rule Help or Harm Sound Retirement Planning?” invokes the possible unintended consequences of the DOL’s rule that “could worsen U.S. savings and retirement rates” and says the fiduciary rule as proposed may not serve the best interest of consumers.

The council says the DOL's rule would decrease retirement savings by pricing low- and moderate-income investors out of the personalized guidance and advice market. The council questions assumptions and data regarding pricing of 401(k) plan investments versus IRA investments used in a White House analysis, released in February, “The Effects of Conflicted Investment Advice on Retirement Savings.”

However, the council's paper gives more focus to “underperformance,” while the White House paper discusses “conflicting incentives.”

A link to the council’s paper is here. A link to the FPC’s letters is here.

Data & Research November 18, 2015

Advisers Boost Retirement Planning Efforts

Pre-retirees who work with an adviser are more likely to feel confident about retirement than those who do not, LIMRA research finds.
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Pre-retirees who work with an adviser are more likely to have done the necessary retirement planning which would lead to more realistic confidence in their retirement security, according to the LIMRA Secure Retirement Instititue.

Study results published in the Institute’s new “2015 Retirement Income Reference Book” reveals two-thirds (67%) of those who work with an adviser have determined what their income in retirement will be, compared to 46% of those who do not work with an adviser. Sixty-three percent of respondents who work with an adviser have determined what their expenses in retirement will be, while only 39% of those without an adviser have done so.

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Those who work with an adviser have determined what their Social Security benefit will be at different ages more so than those who do not work with an adviser (80% vs. 57%). The same is true for determining health care coverage in retirement (57% vs. 33%) and estimating how long their savings will last (50% vs. 27%).

In addition, pre-retirees who work with an adviser are more likely to feel confident than those who do not (79% vs. 50%). Forty percent have determined a specific plan for generating retirement income from savings, compared to only 22% of those who do not work with an adviser.

While some planning is better than none, a specific plan enables pre-retirees to feel confident about retirement based on real information and preparation instead of ad hoc strategies and belt-tightening, LIMRA says.

NEXT: Overall, pre-retiree confidence does not match planning efforts

More than 1.5 million people will retire every year from now until 2025, the LIMRA Secure Retirement Institute says.

Overall, the research found that just more than half of pre-retirees (ages 50 to 75 with at least $100,000 in household investable assets) are confident in their retirement security based on their self-assessed ability to manage finances (62%) and the expectation of living modestly in retirement (59%). However, study results reveal only 20% of all respondents actually have a formal retirement plan, and less than 40% have done basic planning activities, such as calculating what their assets, income, and expenses will be in retirement.                              

Institute research shows only one in four retirees express major concern about longevity risk, even though half of 65-year-olds will live into their late 80s. And less than half say they are concerned with the risk of having to provide for long term care expenses and costs associated with health care outside of what Medicare covers.   

A confident attitude is encouraging, but Institute researchers point out that confidence based on subjective assessments instead of real-world planning can threaten the security of a person's retirement.

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