Wednesday, August 19, 2015

Retirement Investing: Plan B?

"We shall fight on the beaches, we shall fight on the landing grounds…." Oh, wait! That was Winston Churchill in 1940, not opponents of the Labor Department's proposed fiduciary standard for investment advice.  Nevertheless, they showed their fighting spirit at last week's hearings.

Requiring fiduciary-quality advice would not reduce costs, representatives of the investment-products industry contended. They repeated their warning in TV commercials. Workers seeking fiduciary guidance would have to pay up, shelling out the same one percent annually as richer folks. And the industry's fierce resistance ("We shall never surrender!") would send compliance costs through the roof.

Perhaps some sort of fiduciary standard for investment advisers to 401(k) plan investors may yet emerge. But the pale, anemic regulation probably won't be worth much. 

So it's time for Plan B: If sellers of investment products can't be turned into fiduciaries, perhaps they can be sidelined.

Plan B proponents advocate drastic steps to simplify retirement investing. They would replace today's  jungle of retirement plans and accounts with just one vehicle. John N. Friedman calls it the Universal Retirement Savings Account. Investment choices ideally would be limited to low-expense index funds or life-cycle funds. 

Unfortunately, history shows Plan B is a bad bet. Government efforts at simplification almost always fail– look at the Internal Revenue Code. Restricting investment choices to a few simple, inexpensive products is equally difficult. If this is a free country, shouldn't investors be free to buy pricey investment products without interference from the Nanny State?

Anybody got a Plan C?

1 comment:

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