Cease-fire by DOL fiduciary rule opponents may not last long

The financial industry generally has not barked about the final fiduciary rule, but that doesn't mean that it won't eventually bite.

In the three weeks since the Labor Department released the final version of the rule that would toughen investment advice standards for retirement accounts, the financial industry generally has not barked, but that doesn’t mean that it won’t eventually bite.

Financial firms and the trade organizations that represent them in Washington levied some harsh criticism of the proposed rule over the last year in comment letters, before Congress and at conferences.

Rather than launch a barrage of attacks on the final rule, however, trade groups have mostly held their fire. But the cease-fire may not last.

The first shots of industry resistance occurred last week, when several of them sent a letter to Congress in support of a House vote on a resolution that would kill the rule.

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Eight industry trade associations, including the Securities Industry and Financial Markets Association, the Financial Services Institute and the U.S. Chamber of Commerce, said in an April 27 letter that compliance “will be extremely complicated and expensive, resulting in increased consumer costs that will limit the services available to many modest income investors.”

That reprise of rhetoric they’ve been using for years came as House Republicans were gearing up for a floor vote on the resolution last Thursday. It was approved along party lines, leaving the GOP far from the supermajority required to override a promised presidential veto. The industry letters in support of the resolution were a case of the Hill GOP pulling the industry along an anti-regulation effort rather than the industry pushing Republicans to attack the rule.

The trade groups have been dragging their feet for two reasons. One is the heft of the regulation itself, which weighs in at 1,023 pages.

SIFMA said attorneys at their member firms are still trying to interpret the language of the rule. Operational staff doesn’t yet have a clear idea of how the provisions will affect daily business.

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The group could still be a long way from drawing fresh conclusions about the final regulation, which requires financial advisers to 401(k) plans, individual retirement accounts and other qualified plans to act in the best interests of clients.

“We could still be another month or couple months from that,” said Lisa Bleier, SIFMA managing director and associate general counsel.

Not yet fully grasping the final rule hasn’t stopped them from supporting the Republican effort to kill it, though.

Another thing that’s holding back the industry is that the DOL made significant modifications to the rule in response to criticism from financial firms.

The DOL overhauled the centerpiece of the regulation, the Best Interest Contract exemption (BIC) that gives financial advisers latitude to charge commissions or take revenue sharing as long as they sign a legally binding agreement with their clients to act as fiduciaries.

“There’s just a sense of relief relative to the proposed rule,” Craig Pfeiffer, president and chief executive of the Money Management Institute, told reporters at an MMI conference in Washington on April 21.“I think it’s workable.”

That kind of reaction has been key to the relatively smooth sailing the final rule has enjoyed so far, said Barbara Roper, director of investor protection at the Consumer Federation of America.

“In each of these organizations, there are probably members who are saying,’Let’s get on with it and implement the rule,’”Ms. Roper said.

As many financial firms turn toward implementation, even the inevitable lawsuits may not matter.

“If an injunction comes too late, some in the industry may shrug their shoulders and say, ‘We’re already committed,’” said Duane Thompson, senior policy analyst at Fi360.

But the industry remains wary, and, despite the changes and relief, is still sticking to the old attack formula in the new letter: The rule would result in savers “losing access to affordable retirement advice.”

There doesn’t seem to be an end in sight to the criticism as long as there remains a best interest contract.

“There are some changes but many of these changes are not getting to the heart of what needed to be addressed,” Ms. Bleier said. The DOL “did drive almost all relationships to the BIC.”