Are you saving for retirement? The fiduciary rule may be hurting you.

Talk to any financial advisor and they will tell you that diversifying a client’s individual investment portfolio is an essential step in growing savings over time. Investing in a carefully selected mixture of assets can reduce risk for a given level of return, while potentially increasing an individual’s long-term gains.

For a retirement saver, whose investment horizon often extends decades into the future, having an individually tailored and diverse investment portfolio is the crucial step in ensuring he or she meets future financial goals.

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Though temporarily delayed, the U.S. Department of Labor’s fiduciary rule is already making it harder for individuals to access the portfolio-diversifying investments Americans need. Many of the fiduciary rule’s impacts on everyday Americans have been widely noted elsewhere.

 

What has gone largely unnoticed by many in Washington, D.C. is the direct and real impact the rule is already having on Americans’ ability to make investment decisions personally tailored to their individual circumstances. Specifically, the rule has already begun limiting investors’ access to certain long-term investments that can diversify their portfolios and help them achieve their investment goals.

I am watching this dynamic play out in real time, as Americans are seeing previously accessible investment options taken off their table. For more than 30 years, the Investment Program Association (IPA) has served as the advocate for portfolio diversifying investments, such as publicly registered real estate investment trusts and business development companies.

With the guidance of trusted financial advisors, nearly 3 million individual investors in all 50 states have realized the value of these direct investments in asset classes that have historically been available chiefly to institutional investors.

Today, these investment options function as a critical component of an effectively diversified investment portfolio. Unfortunately, these diversification tools are disappearing because of the private right of action contained in the Department of Labor rule.

In February, President Trump issued a memorandum to the Department of Labor asking it to determine if the fiduciary rule would “cause an increase in litigation.” Make no mistake: there will be an increase in litigation. But more importantly, it’s the threat of litigation that’s already harming investors.

The IPA’s goal in any reform of the rule is the removal of this private right of action. Regulators have stated that the rule’s Best Interest Contract Exemption uses private litigation as the primary, if not sole, means of enforcement.

Using private litigation as the primary enforcement mechanism is an ineffective method of regulation and will undoubtedly continue to deprive the average American of investment options — options that may be more suitable for an individual’s portfolio than the choices prescribed by the Department of Labor or favored by the trial bar.

Furthermore, increased litigation will further diminish investor access to financial advice as institutions that initially opt to continue to service their retirement investor clients are forced by economic realities to re-evaluate the risks and potential liabilities, as many already have.

In his February executive order on financial regulation, Trump stated that his first core principle for financial regulation will be empowering Americans to make their own financial decisions. This includes decisions about how to save, invest for retirement and diversify their portfolios. We agree.

Sadly, the Department of Labor’s controversial rule is having the opposite effect. Because of this, the IPA is unable to support the fiduciary rule as it stands and will continue calling for the necessary changes until it is revised to account for Americans’ best interests.

Anthony Chereso is president and chief executive officer of the Investment Program Association, an organization that supports individual investor access to direct investment products for a diversified portfolio.


The views expressed by contributors are their own and are not the views of The Hill.