Are Retirement Plans destined for higher costs and less advice?

%By now many people have heard about a proposal by the Department of Labor (DOL) that will change the rules on how investment advice can be provided to retirement accounts in the U.S. But as I speak to those in the investment industry throughout the country, l find that very few are aware of what is actually in this proposal.

The intent of this new proposal is to lower the fees that retirement plans pay for service and execution. The intent is genuine, but in reality, the exact opposite may be the result. The effect will be felt by the broker dealer industry more so than by the Investment Advisory Industry. But make no mistake, both industries will be effected. And so too will the effect be felt by small business retirement plans. According to the US Chamber of Commerce, 99% of US employers are small businesses and they provide 63% of private-sector jobs. Many of these small businesses can't afford to have 401(k) retirement plans because of costs and administration. That steers them into retirement plans such as SEP IRAs and SIMPLE IRAs which are popular, easy and inexpensive.

i have been in the broker dealer industry for over 40 years and also in the Registered Investment Advisory industry for over 20 years. I have provided investment advice to retirement accounts of all types and sizes my whole career, often to people that weren't even clients of mine. I believe very strongly that everyone should have a retirement account and I want to help them, even if I am not compensated for my advice. If this DOL proposal becomes law, I will have no choice but to refrain from assisting many retirement accounts in the manner in which I have been accustomed. The most important aspect in proper money management is how the investment proceeds are asset allocated in various investments. In other words, how the investments are split up among large cap stocks, small cap stocks, growth stocks, value stocks, foreign stocks, foreign bonds, government bonds, high yield bonds, hedge funds, private equity, venture capital commodities and real estate, just to name a few. Under this DOL proposal, I will not be allowed to give specific asset allocation advice by percentage in each asset class. By advising as I have in the past, I will be making myself and my companies liable, so my advice will not be as comprehensive. There are many more provisions in the DOL proposal that would cause me to be very careful as to what advice I would give or what services (if any) that I would offer to any retirement plan.

Other advisors and broker dealers will likely feel the same and will chose to either exit the retirement account industry, dramatically reduce choices for retirement account investment options, raise fees to compensate for the increased liability or a combination of all these.

What does this mean to the small business investor that needs help with setting up one of the various types of retirement accounts for himself (herself) and employees? If the DOL proposal for new fiduciary requirements becomes law it seems almost certain that there will be less options for the investors, less advice on what to do and how to invest and higher fees for the investors in their retirement accounts.