Despite years of intense opposition, a Labor Department regulation that would raise investment advice standards for retirement accounts is marching toward implementation.
It's not yet clear if the financial industry's Hail Mary pass to stop the final rule in court will be completed in the end zone. But even if it loses the war over the rule, financial firms continue to win rhetorical battles — and get under the skin of agency officials.
You have to listen closely to know that DOL deputy assistant secretary Tim Hauser is upset. He doesn't often deviate from his low-key, affable demeanor, and usually has to use a declarative sentence to indicate he's mad.
But he did so during a Sept. 16 panel at the Financial Planning Association's annual conference in Baltimore. He said he's heard from investors who have been told by their brokers that the broker can no longer work with them in a commission-based account.
But the DOL rule doesn't mandate fee-only accounts, Mr. Hauser said. In fact, it prohibits moving a buy-and-hold customer into a fee account if it's not right for them.
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What the broker has to do is sign a legally binding best-interest contract with a client that requires the broker to act in the client's best interests. The broker can then continue to charge commissions or 12b-1 fees or take revenue sharing.
“If someone doesn't want to enter into a contract with their customer because they do not want to step up to the plate and tell the customer: I promise to act in your best interests. I'm going to be prudent, loyal and won't lie to you and [will] charge reasonable compensation – that's fine,” Mr. Hauser said. “But they should tell their customer that's why I put you into a different account, because I'm not prepared to enter a contract with you that says that.”
That's about as steamed as Mr. Hauser gets in public. He's reached that level even though DOL is decisively winning the battle over the rule, which will begin implementation in April.
(More: The most up-to-date information on the DOL fiduciary rule)
But the industry's storyline has taken hold. Clients hear that the DOL rule is too complicated and would sharply increase advisers' legal liability and regulatory costs. It will force them to streamline the diversity of their business models.
Another industry trope also is sticking: The DOL doesn't know what it is doing. That irritates Mr. Hauser's boss, DOL assistant secretary Phyllis Borzi.
“They're still saying it, if you read the lawsuits,” Ms. Borzi said on Sept. 23 at an
Institute for the Fiduciary Standard event in Washington. “The industry would talk about how the people at the Department of Labor really were, basically, uninformed. We didn't get it. We didn't understand.”
But Ms. Borzi said her boss, Labor Secretary Thomas Perez, insisted that everyone, including the industry, be heard. She sat down with financial firm representatives multiple times.
“There wasn't a meeting we turned down,” Ms. Borzi said. “It was like Ground Hog Day, DOL version.”
She said the process produced a stronger regulation.
“Our rule represents humility,” said Ms. Borzi, who was awarded the institute's Frankel Fiduciary Prize. “We listened. We learned. We acted on the information we got. Every one of those meetings we took was of value.”
Ms. Borzi knows that the rhetorical battle will continue long after the rule is in operation.
“It's never going to be over,” Ms. Borzi said. “We know it never ends. But I hope we've taken the first steps in this rule to change the world, to change the culture.”
