Advisers, Robotic or Not, Should First Do No Harm

The Wall Street Journal

Maybe it’s time to introduce the guiding principle of physicians to financial regulations: “First do no harm.”

Robert Litan and Hal Singer’s “Obama’s Big Idea for Small Savers: ‘Robo’ Financial Advice” (op-ed, July 22) outlines important points about the Labor Department’s fiduciary rule. However, there are a couple of additional points that are worth highlighting. The first is the possibility of increased leakage out of retirement accounts during job changes if the rule goes into effect as is. According to the Bureau of Labor Statistics’ most recent data, the median number of years wage and salary workers have been with their current employer was 4.6 years in January 2014. For many this means a significant number of different jobs over their careers. Employees have the option of leaving their funds with their old employer, transferring it to a plan with their new employer, rolling it into an IRA or taking cash out when they change jobs. Financial advice becomes crucial at this point and helps keep savings intact for many young workers, helping savings grow with the magic of compounding. It is hard to imagine robo financial advisers taking over this duty.

The second issue is the availability of financial advice, especially for setting up retirement plans for small businesses. One goal of the Obama administration has been to increase access to retirement plans, but the DOL rule could hurt its own agenda. The seller’s exception under the proposed rule (when sellers clearly communicate that they are selling a product and not advising) does not apply to individuals and small businesses. Many experts think that this will limit or discourage many small businesses from starting their own plans. Given that these businesses are extremely important in reaching the majority of the U.S. workforce, any rule that will impact the financial future of their employees should be considered carefully.

Maybe it’s time to introduce the guiding principle of physicians to financial regulations: “First do no harm.”

Pinar Çebi Wilber

Washington