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Mark Williams, senior portfolio manager with UBS; Alice Joe, U.S. Chamber of Commerce vice president; and Carolyn McClanahan, certified financial planner and founder of Life Planning Partners Inc., participated in a panel discussion Monday about the U...
Jax Daily Record Tuesday, Oct. 18, 201612:00 PM EST

New regulation may impact millions of retirement plans

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by: Max Marbut Associate Editor

The U.S. Department of Labor has enacted a set of regulations that will go into effect in April and likely impact retirement plans owned by millions of Americans.

The “Fiduciary Rule” was the subject of a panel discussion hosted Monday by the Rotary Club of Jacksonville.

“It’s 56 pages and it’s not in large print,” said attorney Andrew Fawbush, a partner at Smith, Gambrell & Russell and chair of the firm’s executive compensation and employee benefits practice.

The rule will require those who administer — or even give advice concerning — retirement plans to take only actions that are for the benefit of their clients and that do not create conflicts of interest that might cause financial gain for the adviser at the expense of the client.

In legal terms, a fiduciary is a person or a business — like a bank or stock brokerage — that has the power and obligation to act for another under circumstances that require total trust, good faith and honesty.

The most common is a trustee of a trust, but fiduciaries can include business advisers, attorneys, guardians, administrators of estates, real estate agents, stockbrokers or anyone with whom someone places complete confidence and trust.

Fawbush said the labor department is increasing the regulation of retirement plans because it’s estimated Americans have about $24 trillion in assets in such plans.

That’s about equal to the national debt, he said.

About $7.3 trillion of the total is invested in Individual Retirement Accounts (IRAs), which are regulated by the U.S. Treasury through the IRS.

He said at least $95 million, and possibly as much as $159 million, is lost from retirement plans annually due to “conflicted” financial advice.

“Some people lose as much as 25 percent of the value of their retirement plan,” Fawbush said.

Another reason for the new rule, he said, is that when Congress enacted in 1974 the Employee Retirement Income Security Act (ERISA), IRAs and 401(k) plans didn’t exist.

Alice Joe, managing director of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, said the rule is so complex and its ramifications so unclear the chamber plans to challenge the rule in court, even though there’s little chance of prevailing.

“The U.S. chamber doesn’t make the decision lightly to sue the government,” she said. “It’s not cheap, it will probably end up in a court of appeal and the chances of winning are well below 50 percent.”

She said the chamber will nonetheless seek legal remedy because if the rule is allowed to stand as it is written, some retirement advisers may stop offering their services or increase what they charge clients due to the more stringent documentation requirements in the rule.

“A lot of people may be left with fewer choices and less advice,” Joe said.

UBA Senior Vice President Mark Williams believes the rule will have a greater impact on retirement plans at small businesses compared to major corporations.

He said 90 percent of plans with assets of more than $50 million have a fiduciary, while less than 10 percent with assets less than $50 million have fiduciaries.

Certified financial planner Carolyn McClanahan, founder of Jacksonville-based Life Planning Partners Inc., said Fawbush’s estimate of how much money is lost from retirement plans may be too low.

She estimated the total impact to enrollees could be as much as $17 billion, when loss due to excessive fees is added due to failure to act as a fiduciary on the part of plan managers.

“That money needs to stay in the hands of investors,” said McClanahan. “It’s important to find a financial adviser that will act in your best interest and who understands your money is a tool, not an objective.”

Joe said even though the national chamber plans to sue over the details of the new rule, the basic concept of protecting investors is sound.

“Anyone who calls themselves a financial adviser should be a fiduciary,” she said.

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