WASHINGTON – If the Department of Labor moves ahead with its proposal to impose a fiduciary responsibility on financial professionals offering retirement advice, waves of broker-dealers and company call centers would exit that market and further jeopardize the already precarious retirement situation for millions of workers, a new study has found.

The study, commissioned by the Washington law firm Davis & Harman LLP on behalf of a group of financial services clients that provide retirement advice, anticipates that brokers and call centers, fearing legal liability from the new rules, would no longer be available to counsel workers leaving their jobs about their options for how to handle their retirement plans.

Without that advice, more workers would be likely to cash out their plans upon leaving a job, rather than rolling them over to an IRA or staying with the employer's plan.

The study estimates that those cash-outs would add up to between $20 billion to $32 billion each year, which could translate into a net annual decline in retirement savings by 20% to 40% for the affected workers.

The Labor Department has said that it plans to re-issue its fiduciary proposal later this year, with a tentative target set for August, though the official leading the effort has acknowledged that that date could slip.

The fiduciary rules would aim to crack down on what Phyllis Borzi, the assistant secretary of Labor who heads the Employee Benefits Security Administration, says are rampant conflicts of interest in the retirement market. The revenue-sharing arrangements between mutual funds, IRAs and other investment vehicles and the financial professionals who advise investors can result in disadvantageous recommendations for investors, Borzi has argued.

But barring the payments brokers receive from funds for marketing, record-keeping and other services would blow up the entire business model of many brokers and the smaller and midsize IRAs that cannot afford to work with advisors, according to Kent Mason, a partner with Davis & Harman.

Borzi has insisted that the rules are not aiming to regulate any specific business model, but rather that the department is more narrowly trying to protect the integrity of the advice that investors receive.

Mason isn't buying it.

"The message is that she's saying that the brokerage model needs to be modified," he says. "People are going to have to materially change their arrangements."

A spokesman for the Labor Department declined to comment on the critique of the pending proposal in the report released Wednesday. But in numerous public-speaking engagements in recent years (DoL rolled out its original fiduciary proposal in 2010), Borzi has maintained that the rules would not bar the commission-based model for retirement advisors, and would include detailed guidance and targeted exemptions that would permit what might be seen as benign conflicts of interest.

That's small solace to the brokers with a business model primarily staked around revenue-sharing arrangements with funds, rather than commissions.

"We have heard that there may be some small exemption with respect to the revenue sharing," Mason says. "But based on what we've heard, the analysis that I would give is if a bulk of your compensation is coming from revenue sharing, and the bulk of it is illegal, that doesn't help you very much."

In addition to the crackdown on conflicts, the fiduciary proposal would require advisors serving the retirement market to act in their clients' best interests. Mason says that the firms he represents aren't objecting to those provisions.

"If they're not giving advice in their clients' best interest, they're not going to have those clients. That aspect of it is not controversial," he says.

But without a provision that would permit the current revenue-sharing model to continue provided advisors disclosed their material relationship with investment vehicles, Mason says his firm will continue to lobby against the rules.

The new study, conducted by Quantria Strategies, projects that if the Labor Department were to enact its fiduciary rules without more sweeping exemptions, millions of Americans would lose access to advice as a result of brokers and financial firms' call centers determining that they could no longer field questions about the options for transitioning a retirement plan after a worker leaves a job.

Without a professional to lay out their options, many workers would opt to cash out their plans rather than roll them over to an IRA or remain in their current fund, the study concludes. It also finds a strong correlation between retirement savings and professional advice: according to Quantria's model, individuals with financial assistance maintain retirement savings balances that are 33% higher than those who don't.

The reason is simple, the way Mason tells it. For many middle-income households living under a budget and without an advisor, retirement savings will take a backseat to the day-to-day expenses of groceries, gas and rent.

"People with access to financial assistance have far greater retirement savings," Mason says. "I think the huge thing the Department of Labor is not taking into account – and my clients say this to me all the time – is that retirement savings are sold and not bought."

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