DoL Fiduciary Rule Could Result in Large Drop in Retirement

By Fred Barstein • April 13, 2014 • 0 Comments

The DoL’s expanded fiduciary definition rule could reduce retirement savings by 20 to 40 percent, according to a study commissioned by Davis & Harman LLP on behalf of a coalition of financial services organizations, including banks, insurance companies, brokerage firms and mutual funds that service the retirement industry. 

Quantria Strategies, the author of the study, estimates that more workers would cash out their retirement plans at retirement or when changing jobs if they had less access to a financial professional — which the group stated would result from the DOL’s expanded definition of fiduciary rule. Since a broker’s firm would benefit from a rollover, they would be prohibited from making that recommendation to clients, Davis Harman stated. In addition, under the DOL’s proposed rule, those giving rollover advice would be held to a fiduciary standard. 

Citing a separate study, the report notes that 42 percent of workers currently cash out (75 percent with less than $1,000 and 10 percent with more than $100,000) while 29 percent roll over their savings and another 29 percent leave the money in the plan. Those most likely to cash out, according to Quantria, include lower income workers, younger workers, African Americans and Hispanics — all groups that are likely to rely on non-fiduciary advisors. Citing one company’s results, those with access to a financial advisor are 3.2 times less likely to cash out, the study notes.

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Fred Barstein is NAPA Net's Editor in Chief.