As a Black woman and small business owner, as well as an activist with a political and governmental background, I have seen and understood the way that businesses thrive — or dwindle — based on government regulation. For small-business owners and entrepreneurs, success depends on the government and regulatory bodies providing consistent laws. That, combined with balanced regulations, helps America’s small businesses develop and succeed while operating responsibly.
Clear and consistent regulations are also good for consumers. Clarity helps reduce confusion and keeps prices low.
Small-business owners like myself are closely watching the Department of Labor as it considers new regulations for financial professionals.
In Spring 2021, the Biden administration’s Labor Department released a regulatory agenda that confirms the department is working on a rewrite of the fiduciary rule for the third time in 12 years.
Many following this saga have their fingers crossed that the White House and Congress will tell the Labor Department to halt any further action on this rule for the sake of businesses and consumers alike. In a post-COVID-19 landscape where many businesses are barely holding on, unnecessary rules can be dangerous.
So, what is the fiduciary rule?
It’s a Labor Department rule that governs what financial professionals can recommend and receive in compensation when working with certain clients and investors. In plain words, this rule is designed to ensure financial professionals are operating based on the best interests of their clients, rather than simply chasing a commission or payout.
This is a commendable goal, and certainly one that I support. However, there are already rules in place with the Securities and Exchange Commission and the Department of Labor that achieve this aim.
The SEC adopted what is known as the Best Interested Standard in 2019. It requires financial professionals to make recommendations that are in their clients’ best interests.
The SEC’s approach to regulation was very evenhanded. It concluded that consumers win when they can choose from different plans and advisory models, and it formulated regulations that protect consumers while also allowing different options to exist.
Rather than implementing new regulations this year, the Labor Department should instead take a step back and assess how its proposed protections would work alongside updates the department itself already has made.
Attempts to reexamine and rewrite the fiduciary standard appear to come from a place of good intentions, but we’ve already seen the consequences of a bad fiduciary rule on low-income Americans and communities of color. In fact, studies of a previous fiduciary rule struck down by a court have suggested that the very consumers whom the Labor Department wishes to help — smaller savers and minorities — are the ones who will get hurt the most by this rule.
As noted in this column from the President of the Hispanic Leadership Fund, the fiduciary rule is projected to result in 2.7 million Americans who earn less than $100,000 missing out on more than $140 billion in investment returns during the next 10 years. Furthermore, this rule will have much harsher consequences for people of color; as it already stands, nearly two-thirds of Hispanic families don’t have any form of retirement savings account, and over half of Black Americans do not have any form of retirement savings account.
Even those people of color who do have retirement savings accounts wield far less in those accounts than their white counterparts: according to the National Institute of Retirement Security, people of color nearing retirement age have average savings of $30,000, a mere one-quarter of the average savings of White households at $120,000.
Saving for retirement is no easy feat; yet for people of color in America, this challenge is just another reminder of the growing racial wealth gap. Institutionalized and systemic racism has drastically reduced the income, savings, home values, and overall wealth of Black and Brown families in America, which has resulted in centuries of financial insecurity for our communities.
I hope that Congress and the White House will get involved before the Labor Department takes steps that will have damaging and long-lasting consequences for millions of Americans. There are already rules to protect consumers and make sure that they are provided with financial advice that is in their best interest.
Wanda James, of Denver, is an entrepreneur and a Navy veteran.
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