The Department of Labor's new fiduciary rule received high marks for political diplomacy and for being “workable,” according to a panel of experts speaking Thursday during an InvestmentNews webcast.
“My first impression is that a number of aspects are considerably more workable than the original draft, which shows some great compromise reflecting all the comments,” said Jason Roberts, chief executive of Pension Resource Institute.
Mr. Roberts was referencing the more than 3,000 comment letters that were submitted in response to the rule's original draft.
Asked whether he felt the flood of comment letters, among other public statements and news reports, forced too much compromise in the final document, Mr. Roberts described the compromise and politically expedient.
“I'm still pouring through the document, but certain aspects look like new information, and it looks like the (best interest contract exemption) is more workable, and there's a level-fee exemption now,” he said. “I think the compromise was valuable on some fronts. It preserved some investor protections, but also recognized limitations and constraints.”
(More coverage: The DOL fiduciary rule from all angles)
Mr. Roberts was joined on the webcast by InvestmentNews political reporter Mark Schoeff and Jamie Hopkins, professor and co-director of the retirement income program at The American College of Financial Services. The webcast was moderated by InvestmentNews assistant managing editor Patrick Graham.
Mr. Schoeff described the unveiling of the rule this week as “the week that everyone involved in investment advice has been waiting for, not just over the past six years when DOL introduced the original idea for the rule, but for decades if you include the time the Securities and Exchange Commission has been wrestling with the issue of fiduciary duty.”
“No matter what you think of the rule, it was a remarkable political achievement,” Mr. Schoeff added.
On the matter of whether the rule's authors compromised too much, to the point of watering it down, as some critics have charged, Mr. Schoeff held it up as an example of pure political will.
“The administration would not describe it as being watered down, but politically they had to demonstrate that they are listening to all sides,” he said. “There were more than 3,000 comment letters, and they had to show they were being responsive. They can now go to Capitol Hill Democrats, who were wavering and say, 'we listened and made the changes'. That keeps them on board.”
Mr. Hopkins said one of the biggest compromises he saw in the final rule was the “extension of the time people will have to comply with this.”
“Some aspects won't have to be implemented until 2018,” he said. “We have to take our hats off to DOL because they did show an interest in listening here.”
The webcast, which drew nearly 1,700 attendees and generated more than 125 questions, came the day after the much-anticipated DOL rule was made public, and many of the questions and comments were along the lines of still trying to figure out what it all means to the financial services industry.
As Mr. Roberts pointed out, the true test of the rule will be a down market environment, and the usual increase in investor lawsuits, which will now include a contract that says the investor's interests are placed ahead of the adviser's.
“In down markets, even good advisers get sued,” he said. “When we have some declining markets and start to see litigation on the rise, as we always do, we will know how strong it is.”
While the rule has drawn attention to the need to protect investors from unscrupulous brokers and advisers, Mr. Hopkins stressed that it is unfortunate if that is the main takeaway from the rule.
“Most brokers and insurance agents already believe they acted in best interests of clients and in many cases they did,” he said. “This document is just going to make it more official. But implementing and monitoring, is where most of the arguments are around. There's not a huge argument around acting in the best interest of clients.”
Mr. Schoeff acknowledged that challenges related to implementation is one of the criticisms that has emerged.
“The DOL does not have examiners nor enforcement authority,” he said. “The DOL is relying on the court system and the Finra arbitration system. Enforcement will be through litigation, that's the bottom line.”
Another bottom line, according to Mr. Schoeff, is that the rule is here to stay.
“Once the rule is entered into the Federal Registry, Congress has 60 days to vote to stop it,” he said. “It only requires a majority and it can't be filibustered, but of course Obama would veto it if there was a majority vote against it. There are inevitable lawsuits that will be filed, but (DOL Secretary Tom) Perez said he has written a rule that will withstand litigation.”