As potential delays and road blocks pile up in front the Department of Labor's fiduciary rule, an irony is emerging in that the strongest supporters of the rule could benefit the most from the rule's demise.
Independent registered investment advisers, which have largely supported from the start the idea of requiring fiduciary responsibility when managing retirement account assets, could be set up for a big win if the rule fades away or falls way behind the April enactment schedule.
“If the rule gets delayed or repealed, I think RIAs will come out ahead because so much spotlight has been put on the topic of fiduciary responsibility, and advisers have been putting their clients' interests first since 1940,” said Skip Schweiss, managing director, advisor advocacy and industry affairs at TD Ameritrade Institutional.
Threats to the scheduled launch of the controversial fiduciary rule were mounting well before Donald Trump won the November presidential election, but have gained traction since the election and the emergence of a more anti-regulatory mood coming out of Washington.
Blaine Aikin, executive chairman at fi360 Inc., has long given little chance of the rule taking effect on schedule, and now sees a potential win for RIAs regardless of what happens.
“From a competitive perspective, fiduciary duty has been used as an advantage for RIAs,” he said.
As the theory goes, that competitive advantage could gain even more traction if the rule goes away because the opposition to it has moved the issue of fiduciary responsibility closer to the mainstream consumer market.
“Whenever you look at who lined up in support of DOL rule, some of biggest proponents were the consumer groups, and that has moved the story from the trade press to the consumer press,” Mr. Aikin said.
In essence, RIAs will be able to leverage the new awareness of fiduciary duty that most have always stood for, along with the distinction created by a delayed or ultimately diminished DOL rule.
“At this point, I think a delay is very likely,” said Mr. Aikin. “The time to get something done is pretty short, because this is probably not a first-100 days' sort of thing, so I would think an executive delay of a year is a real possibility.”
One might assume that the brokerage industry, which has largely opposed the DOL rule, would be jumping for joy over the new outlook under the Trump Administration, but it is so far keeping a low profile.
“Hard-working Americans will benefit the most [if the rule is repealed] because their access to critical advice, products and services would be preserved,” said David Bellaire, executive vice president and general counsel at the Financial Services Institute.
“Main Street America needs access to advice to plan for a dignified retirement with confidence,” he added.
A spokeswoman for Merrill Lynch, which announced in October it would eliminate its commission-based individual retirement account business, declined to comment for this story.
Bill Van Law, president of the Investment Advisors Division at Raymond James & Associates, recognizes that the “RIA world is the net winner” if the rule is delayed or scrapped.
“For RIAs, it's actually the best of both worlds because it represents less competition, and consumers have become more aware of the concept of fiduciary duty,” he said. “In fact, I think RIAs win more without the rule than with it."
According to Mr. Van Law, the brokerage industry could also be hampered by the money that has already been spent in preparation for compliance to the law.
He said the broker-dealer side of Raymond James, for example, has already spent “tens of millions to comply with this.”
“That cost has to go somewhere,” Mr. Van Law added. “If you increase the cost of wealth management, it means the consumer ultimately pays for it.”
That would have to be counted as a mark in the win column for RIAs.
Brian Hamburger, president of MarketCounsel, a compliance consulting firm, agrees that RIAs will benefit from any delay of the DOL rule. But he believes consumers are the ultimate winner, “because they will continue to have a choice.”
“We're firmly in the camp of advocating for independent RIAs, but supporting the fiduciary rule is a very juvenile position,” he said. “Mission accomplished in terms of the fiduciary conversation and dialogue that has ensued the past few years, and pulling the plug on this horrible conflict-of-interest rule means RIAs win on both fronts.”
Meanwhile, the Financial Planning Association is sticking to the high road of hoping the rule takes effect for the greater good.
“This is not about competition for RIAs, it's about raising awareness,” said Shannon Pike, vice president of Tanglewood Legacy Advisors and the FPA's new 2017 president.
“Definitely, the awareness around fiduciaries has been raised, but from the FPA's standpoint this is a public interest rule,” he added. “When I met with regulators and legislators it became clear this is a very partisan topic. I'm not about more regulations, but I am about the right regulations. And we feel a uniform fiduciary standard is the right regulation.”