As the Labor Department collects comments on its proposed delay to the fiduciary rule, InvestmentNews has some words to share with the agency on getting real about what the ultimate goal is here. We've covered this regulation for almost seven years, and we think advisers deserve better than the perpetual runaround.
Assuming the delay is finalized, and the April 10 applicability date of the regulation is pushed to June 9 — and it could very well be extended beyond that — it's time for the administration to think hard about its endgame. The well-being of too many investors, advisers and companies depends on the outcome, and it's not worth wasting any more time.
The DOL's conflict-of-interest rule, initially released in 2010 but pulled back due to strong industry criticism, was reproposed in April 2015 with significant changes, including the allowance of prohibited transactions as long as a best-interest contract was signed with the client. The purpose of the regulation remained the same: to protect savers from high-fee products by requiring financial advisers working with retirement accounts to put the interests of clients ahead of their own.
Over the course of the next year, the agency accepted comments, held hearings and took one-on-one meetings to understand the concerns that lingered among various parties affected by the revised rule, in order to adjust it further before making it final.
The industry argues the rule is overly complex and burdensome, and would increase the cost of giving and receiving advice — one of the biggest potential expenses being the private right of action that goes along with the best-interest contract and allows investors to file class-action lawsuits.
While the agency did not find it prudent to remove that right from the final rule, it did allow for more freedom of product choice in retirement accounts and eased disclosure requirements.
The pros and cons, and costs and benefits as figured from each side of the fiduciary issue are already well known to the Labor Department staff, financial advice industry and consumer advocates.
Well worth it
If President Donald J. Trump's directive to the agency to review its rule again is truly to find as yet undiscovered tweaks to make it more feasible for all parties without taking the teeth out of its intent, investor protection, then the delay will be well worth it — "it" being the cost to the taxpayer for the agency's time; the confusion among advisers, many of whose firms have spent a lot of money to come into compliance with the rule and would spend more to reverse course; and the higher-fee products some investors will be sold during the delay, while brokers remain held to a lower suitability standard despite some implying they are giving advice.
But trying to find a perfect solution that fully appeases all parties is a fool's errand. No one likes being regulated, and no one likes being taken advantage of. People on both sides will need to give in a little and open their minds to the reasonable concerns of others to break out of this current state of stubborn self-interest.
If the delay, however, is simply to give the Trump administration cover for what it ultimately plans to do — kill the rule — don't dillydally for show. Piling delay upon delay in order to legitimize any review that comes out of that precious time won't prevent future fights that a repeal will surely ignite in the courts, which have to date universally upheld the merits of the rule.
So if Alexander Acosta is confirmed as the next secretary of Labor following his hearing this Wednesday, we suggest he quickly get up to speed on the history of the fiduciary rule and the extensive analysis already conducted as to its costs and benefits. Don't waste any more of the industry's, advisers' and investors' valuable time.