The lawsuit designed to stop the Department of Labor's fiduciary rule will delay implementation and, depending on the winner of the Presidential election, could equal a death of the rule.
This is particularly interesting given the Supreme Court's split, which could result in them making no decision and leaving the appeals court decision as the final word. But first DOL will have to survive a three judge panel and then possibly an en banc hearing and decision. The industry plaintiffs will make a compelling argument that they should not have to spend the resources to implement the rule until the courts have ruled upon it and may argue that they should not have to do so until the next administration is in place. But this rule has had a lot of exposure and DOL can argue, as they have, that the rule is lawsuit proof (but that's not delay proof).
The industry wants to be able to tell its members that we have saved the immediate cost of implementation, which will cause much anxiety within the law firms depending upon many billable hours for implementation. The most vulnerable part of the rule is the data upon which the White House paper made its estimate that conflicts of interest are costing investors enormous sums. The conflicts are there, but whether they translate into provable damages is always a challenge.
The industry has been very successful in challenges involving the required cost benefit analysis of certain rule-making. It's not a bad idea to have a stronger duty for retirement money than for speculation money. But the rule arguably eliminates the investor's choice of adviser fees or buying a couple of funds and holding them for 10 years. This lack of choice turned out to be the main line of attack against the Affordable Care Act.
It's unfortunate the rule does not have a trial period to see how it works in practice. But if the court delays implementation for six months and the Republicans win the presidential election, a new secretary of labor will find a way to kill or delay it further.
Peter Chepucavage is an independent regulatory consultant who previously worked at the National Association of Securities Dealers and the Securities and Exchange Commission.