Bill Overview
Title: Ensuring Sound Guidance Act
Description: This bill generally requires investment advisors and fiduciaries of employer-sponsored retirement plans to make investment decisions based only on pecuniary factors (i.e., factors that a fiduciary prudently determines are expected to have a material effect on the risk and return of an investment based on appropriate investment horizons consistent with the plan's policies and objectives). The bill allows nonpecuniary factors to be considered in certain situations, such as when a customer specifically requests that these factors be considered or when selecting investment options for certain participant-directed retirement plans.
Sponsors: Rep. Barr, Andy [R-KY-6]
Target Audience
Population: Participants and fiduciaries of employer-sponsored retirement plans
Estimated Size: 800000
- The bill impacts investment advisors, who are professionals providing investment advice to clients, particularly in managing retirement plans.
- Fiduciaries of employer-sponsored retirement plans would be directly affected, as they are responsible for managing the plans and ensuring the best financial interests of the participants.
- Participants of employer-sponsored retirement plans will indirectly be impacted, as their retirement investments could be influenced by changes in fiduciary decision-making.
- The bill affects stakeholders in the financial industry, particularly those involved in retirement fund management.
- Employers who offer retirement plans to their employees will be impacted as the fiduciaries making decisions about these plans must comply with the new requirements.
Reasoning
- The policy is likely to have varying impacts across different segments of the population, particularly investment advisors, fiduciaries, and plan participants, as it influences the decision-making process in retirement plan investments.
- Investment advisors and fiduciaries might have to adapt to a more restrictive set of guidelines that focus purely on financial returns, potentially impacting their usual way of advising and managing funds.
- Participants of retirement plans might see changes in their investment outcomes as decisions become more strictly based on pecuniary factors. For some, this might improve returns, while for others, especially those with strong nonpecuniary preferences, this could be a limitation.
- Considering differences in financial literacy, individuals with varying degrees of understanding of investment strategies may perceive the policy's impact differently.
- The budgetary constraints indicate that direct financial assistance or large-scale educational initiatives will likely not be a part of the rollout, limiting direct intervention strategies.
Simulated Interviews
Investment Advisor (New York, NY)
Age: 45 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- This policy restricts my ability to cater to clients interested in ESG investments, limiting their options.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 7 | 8 |
| Year 3 | 7 | 8 |
| Year 5 | 6 | 7 |
| Year 10 | 5 | 7 |
| Year 20 | 5 | 6 |
Fiduciary of a large retirement plan (Chicago, IL)
Age: 50 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 0.0 years
Commonness: 4/20
Statement of Opinion:
- I support this policy as it aligns with our primary focus on financial returns, ensuring participants' interests are protected.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 9 | 9 |
| Year 2 | 9 | 9 |
| Year 3 | 9 | 9 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 7 | 7 |
Employer offering retirement benefits (Austin, TX)
Age: 34 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 3.0 years
Commonness: 10/20
Statement of Opinion:
- The policy makes it easier to comply with fiduciary duties but limits flexibility in offering diverse investment options.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 5 | 7 |
| Year 20 | 4 | 6 |
Retirement plan participant (Seattle, WA)
Age: 40 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 12/20
Statement of Opinion:
- I feel constrained by this policy as it doesn't allow me to prioritize investments based on my values.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 5 | 6 |
| Year 3 | 5 | 6 |
| Year 5 | 5 | 6 |
| Year 10 | 4 | 5 |
| Year 20 | 4 | 5 |
Newly retired (Miami, FL)
Age: 60 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 20.0 years
Commonness: 6/20
Statement of Opinion:
- This policy might improve my investment outcomes by focusing on financial returns only.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 6 |
Financial consultant (San Francisco, CA)
Age: 53 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 3/20
Statement of Opinion:
- My business may suffer as clients interested in SRI might move elsewhere due to this policy.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 5 | 7 |
| Year 3 | 5 | 7 |
| Year 5 | 4 | 6 |
| Year 10 | 4 | 6 |
| Year 20 | 3 | 5 |
HR Manager (Denver, CO)
Age: 48 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 2.0 years
Commonness: 7/20
Statement of Opinion:
- This policy simplifies decision-making by focusing solely on financial returns, which can be beneficial.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 5 | 6 |
Grad student interested in finance (Boston, MA)
Age: 28 | Gender: other
Wellbeing Before Policy: 6
Duration of Impact: 2.0 years
Commonness: 11/20
Statement of Opinion:
- Hemmed in by policy details that limit potential innovation within the fiduciary space.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 5 | 6 |
| Year 5 | 5 | 6 |
| Year 10 | 5 | 6 |
| Year 20 | 5 | 5 |
Retired public official (Atlanta, GA)
Age: 63 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 20.0 years
Commonness: 8/20
Statement of Opinion:
- I welcome the focus on financial returns; nonpecuniary factors should not influence my pension.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Software engineer (Nashville, TN)
Age: 29 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 0.0 years
Commonness: 15/20
Statement of Opinion:
- Feels indifferent as she trusts her fiduciaries to manage investments responsibly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 6 | 6 |
Cost Estimates
Year 1: $20000000 (Low: $10000000, High: $30000000)
Year 2: $0 (Low: $0, High: $0)
Year 3: $0 (Low: $0, High: $0)
Year 5: $0 (Low: $0, High: $0)
Year 10: $0 (Low: $0, High: $0)
Year 100: $0 (Low: $0, High: $0)
Key Considerations
- The adherence to pecuniary factors is expected to minimize unnecessary risks and maximize returns.
- Costs arising from modifying investment evaluation criteria could be minimal, integrated within existing fiduciary frameworks.
- Regulatory compliance and monitoring could incur slight operational costs.