InvestmentNews Editorials

DOL fiduciary rule: Don't abandon compliance just yet

Financial advisers, firms should not make any dramatic changes until the direction of this giant fiduciary ship is on a clearer course

Mar 24, 2018 @ 6:00 am

So now we wait … patiently … for the next move … in the ongoing saga … of the DOL fiduciary rule.

The momentum generated by courts upholding various aspects of the Department of Labor's conflicts-of-interest regulation, as the Trump administration quietly undertook its review, had lulled the industry into a sense of certainty of some kind of fiduciary future, whatever it might look like.

That came to a screeching halt on March 15.

The 5th U.S. Circuit Court of Appeals vacated the DOL's fiduciary rule in a split decision, overturning that of a Dallas district court that had been just as adamant in its upholding of the measure. The appellate judges held that the agency exceeded its statutory authority under ERISA in promulgating the regulation, which requires advisers to act in the best interests of their clients in retirement accounts.

So, is that it then? Eight years of fits and starts followed by a hard stop?

We don't know. It's been virtual radio silence on the part of the Labor Department as to whether it will defend the rule further. The DOL has until April 30 to request a rehearing of the appeal before the entire 17-judge 5th Circuit.

Awaiting 'further review'

As InvestmentNews senior reporter Mark Schoeff Jr. has reported over the last two weeks, the agency has said only that it is no longer enforcing the fiduciary rule until "further review." Presumably, that means further review of the 5th Circuit's decision. The DOL previously said it would not enforce the provisions that are already in place while it conducts its own assessment of the regulation as mandated by President Donald J. Trump, as long as financial firms made a good-faith effort to comply. Now it looks as if the Labor Department has gone a step further and will not be enforcing the rule at all.

But to those opposed to the regulation: Don't pop those champagne corks just yet.

Advisers should continue to do business as usual until the direction of this giant fiduciary ship is on a clearer course.

More:Everything you want to know about the latest on the fiduciary rule can be found here.

Parts of the rule are already in effect, including the impartial conduct standards. As the Labor Department explains, these require advisers to retirement accounts to give advice in the best interests of clients, charge reasonable compensation and not make misleading statements. Is this really too much to ask, regardless of what happens to the DOL rule?

Even if one thinks so, it's wise to comply with any existing regulation until a definitive ruling is in place.

Besides, firms have poured a lot of money into complying with a fiduciary standard, and whatever the DOL rule's fate, the Securities and Exchange Commission will be walking this beat next — and likely soon.

'The sooner the better'

The SEC is expected to propose a fiduciary rule this year, and when its chairman Jay Clayton was asked last Monday when it is coming, he said, "the sooner the better."

And states haven't shied away from enacting their own standards for financial advice.

But aside from regulatory requirements, the writing is on the wall: Consumers are demanding fiduciary advice, and that will only increase as awareness continues to spread.

Since the DOL re-proposed its fiduciary rule in 2015, the consumer press has pumped out more and more stories explaining to the investing public the differences in financial advice standards. That message got an extra jolt when the Trump administration delayed parts of the rule last year.

Many investors are now more aware that their best interests might not be the top concern of the person offering them financial advice. Those informed consumers are prepared to ask tough questions and require answers any adviser would be best-served to be able to respond to in the affirmative.


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