Most financial advisors are interested in knowing how they maybe affected by the new ERISA fiduciary definition, which isexpected to be adopted soon by the Department of Labor (DOL).

In this regard, one of the best uses of your time may be toperuse DOL’s “bible” on the subject, the Fiduciary Investment Advice Regulatory InvestmentImpact document, published a year ago.

The document shows that DOL is fixated on two beliefs: 1)Advisors currently have huge conflicts-of-interest in providingretirement plan investment advice (especially in IRAs); and 2) Ifthese conflicts can be eliminated by regulation, IRA investors will save at least $40billion in fees and expenses over the next decade.

This is not an attempt to balance different sides of anargument. Rather, it is DOL acting as an opinionated advocate forconsumers. DOL makes no attempt to quantify the value ofprofessional advice and service for IRA investors, and its overallview of professionals who provide IRA advice is decidedly dim.

For example: “Strong evidence ties adviser conflicts toinvestments in higher-load, more poorly performing mutual funds.Other evidence strongly suggests that adviser conflicts inflictadditional losses…by prompting IRA investors to trade morefrequently, which will increase transaction costs and multiplyopportunities for chasing returns and committing timingerrors.”

The document shows DOL’s bias in favor of buy-and-hold low-costindex funds (preferably no-loads) as IRA investments.

Also, it reveals DOL’s belief that most investors areoverwhelmed by financial information and have limited ability tomake intelligent decisions. Older investors are especiallyvulnerable because: “By several measures, according to academicresearch, financial capability begins to decline around age 53.”(DOL clearly did not consult with professional advisors to reachthis rather stunning conclusion.)

The document assigns catchy names to conflicts-of-interest thatadvisors may not have known exist. For example:

Reverse-churning – This conflict arises when anadvisor charges an asset-based fee to a client who tradesinfrequently, and might benefit by paying commissions instead.

Hat-switching – This conflict occurs when anadvisor works in more than one capacity (e.g., as a registered repand RIA, or as a registered rep and insurance agent) and does notmake clear to the client which hat he/she is wearing in making aparticular recommendation.

The report tells you, perhaps, what is coming from DOL after thenew ERISA fiduciary rule is implemented. It also reveals twoconflicts that DOL itself may have. First, if DOL can save IRAinvestors $40 billion over a decade, it could produce perhaps $10billion in extra tax revenue for the U.S. Government, when thismoney is distributed. Secondly, the U.S. Government would like tohave a say in how the huge pool of IRA assets, which DOL projectswill reach $19 trillion by 2026, will be invested. The sums havegrown too large to leave decisions to individuals and their chosenadvisors.