…ditching the fiduciary rule may actually be a good idea. While it’s vital that advisors give advice we can trust, the fiduciary rule doesn’t give advisors an incentive to do that. It may even lead to worse financial advice.
We know this from the the 401(k) market, where plan sponsors (often your employer) act as a fiduciary for your 401(k) retirement fund. Despite the standard, most 401(k) participants are invested in the kind of high-fee investment funds that fiduciary-standard-supporters hope to avoid.
In the 401(k) industry, many sponsors don’t want the liability of being a fiduciary. They often hire consultants and advisors hoping to to lessen their liability. This racks up even more fees, which are passed on to participants.
One reason the fiduciary standard doesn’t work is because “best interest” is a vague term. The retirement industry still hasn’t figured out what it means, let alone regulators. It could mean low fees. (Certainly there’s a good case to invest in low-cost passive funds.) But sometimes you pay fees in exchange for risk reduction, as you might with a simple life annuity that protects you from running out of money after retirement.
…The retirement industry is still grappling with all of these questions. The fiduciary standard makes it harder to find the answer because the threat of lawsuits discourages innovation. Skirting liability often becomes the main objective, rather than focusing on good advice that serves individual needs. A survey from AON-Hewitt cites the fiduciary concerns as a primary reason why 401(k) sponsors are reluctant to even offer the post-retirement income options new retirees need.
Here is more from Allison Schraeger.