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Finance Industry Study Argues to Let It Keep Giving Advice As Is

NEW YORK (TheStreet) -- A proposed rule change by the U.S. Department of Labor could cut Americans' retirement savings by up to $32 billion, according to an industry-funded study.

The regulation would affect employees who cash out of their retirement accounts when they leave their jobs, keeping them from getting financial advice from investment professionals that work for firms selling retirement products such as individual retirement accounts.

In public comments, the DOL has said it's a "conflict" for investment professionals working at firms selling retirement products to work with employees looking for retirement distribution advice and that those that conflicts lead to "underperformance."

A study from Quantria Strategies says the rule would slash total U.S. retirement savings by between 20% and 40%, or in dollar terms, between $20 billion and $32 billion out of those retirement accounts.

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"Our position is the investment industry is always acting in the best interests of clients, and we believe employees leaving their jobs would be hurt without professional advice," says Kent Mason, a spokesman for Davis & Harmon, which commissioned the study on behalf of investment industry firms.

The Department of Labor tried to install the "no advice" rule in 2010, but was stopped by rare bipartisan opposition in Congress. The rule has been "re-proposed," as Mason says, and is now moving toward implementation.

"Any regulation that limits an individual's access to investment information when leaving a job could have a substantially adverse impact on retirement savings, reducing those savings by as much as 40% for affected individuals," says Judy Xanthopoulos, a spokeswoman at Quantria. "When you're looking at $100,000 in retirement savings versus $167,000, it makes a big difference."

The investment industry, which has lots to lose from the regulation, claims the proposal would harm the average Americans it means to help most.

"Financial illiteracy increases Americans' risk of bad decisions at what we know to be key 'choke points' in the retirement savings process," Quantria's study says. "A critical choke point is job-change time. The evidence reveals that when individuals -- particularly those with lower financial literacy -- have a financial professional's help at job-change time, they are much more likely to do what benefits their long-term financial health: Keep their money invested in a retirement savings vehicle rather than cash out and leave nothing for retirement."

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