Most U.S. workers don’t need complex financial instruments of the kind that might stop being offered as a result of a pending Labor Department rule, Labor Secretary Tom Perez said Thursday.
“Most people in America … don’t need a complex instrument like a variable annuity. They need something simple,” Perez said in testimony before the Senate Appropriations Committee.
Financial industry critics of the Labor Department’s soon-to-be finalized rule on retirement advising have warned that, by requiring all advisers to meet a “fiduciary” standard that they act in their clients’ best interests, many brokers, insurers and others will have to stop giving financial advice to low-income workers and small businesses.
Sen. Bill Cassidy, R-La., pushed Perez on that point Thursday, citing a report finding that low-income workers in the United Kingdom lost access to their advisers after that country imposed broader fiduciary requirements.
Perez, however, responded that he traveled to the UK to examine how the rules have worked out and argued that workers are better off because they have switched to simpler, lower-fee financial products.
In doing so, they have avoided the trap that the Obama administration has said is the motivation for the rule: Advisers steering clients into inappropriate high-fee financial products because they receive kickbacks for promoting those products. The White House has estimated that savers lose $17 billion annually because of such conflicts of interest.
Those people, Perez said, would be better off with “more simple instruments, like index funds” that come with low fees.
Cassidy challenged Perez on that point, telling him that “you’ve moved beyond, if you will, whether or not they’re getting advice as into whether or not they need advice. That’s actually a different question.”
Perez responded, however, by saying that advisers in the U.S. are ready to take over advising people currently getting bad advice.
Those advisers, who are fiduciaries to their clients, work with small investors and tell him, Perez said, “To those who say they’re going to leave the market if this rule is passed, please give them my email, please give them my phone number, because I have a business model that’s allowing me to do good and do well.”
The final version of the Labor Department’s rule, which has been the subject of intense lobbying, has been sent to the Office of Management and Budget for review, and the industry expects it to be released in a matter of weeks.
