The Case Against Delaying the Fiduciary Rule – Uncertainty Hurts Everyone
By Carol Buckmann, J.D.
The day of reckoning for brokers and others who have been giving investment advice may get farther away. The Department of Labor (DOL) has received faster-than-usual OMB approval to propose an additional delay until July 1, 2019 for additional exemption requirements of the Fiduciary Rule. In the meantime, carveouts from fiduciary status, such as the “seller’s exemption,” are in place, and the new fiduciaries are subject only to minimal requirements of the “best interest” standard. This includes giving advice that is in the client’s best interest, receiving only reasonable compensation and avoiding materially misleading statements.
Is the Fiduciary Rule perfect? Not by a longshot. I would have made it less complex and avoided some new rules that facilitate lawsuits. Yet, the Economic Policy Institute says the cost to retirement investors of an additional delay could reach $7.3 billion over 30 years.
The uncertainty hurts those who would be regulated by the Rule as well. How much effort should they devote to complying with rules that may or may not survive this new administrative review? Should companies limit the individuals who are allowed to become fiduciaries? Or, should they institute broad education programs for their advisors when that might not end up being necessary? Can they unwind their new procedures if the law is changed?
There is superficial appeal to the arguments for further delay, as the Administrative Procedure Act prevents the DOL from changing regulations without notice and hearing. The SEC is reviewing the Rule as well, and it would be better for the same standards to govern pension and non-pension accounts. But in the current environment, it’s hard to realistically expect a rule that adequately protects retirement plan investors from conflicted advice to result from that process.
It is also hard to see why a Rule that went through the most lengthy comment and review process in recent memory should need extensive rewriting, or why those who had so much advance notice of the effective dates should need still more time to comply.
Opponents have a right to challenge the Rule, and they make valid points when they criticize its complexity and its unintended market consequences. However, I have to wonder how much more useful it would have been if the time and money spent on opposing the Rule had been directed towards trying to develop ways to provide better non-conflicted advice to retirement investors.
We can’t turn back the clock. Even if the Fiduciary Rule is repealed, more plan fiduciaries and IRA holders are now aware of the conflicts that can lead to their getting subpar advice. If an adviser can’t answer “yes” to the question: “Will you be a fiduciary?”, it has become much more likely that a fiduciary, participant or IRA holder will seek advice elsewhere. Those who became fiduciaries because of the Rule would have a hard time telling their clients that the law has changed and they now want to have a lower standard of responsibility. And I have difficulty thinking that there won’t always be people willing to step up to the plate and become fiduciaries if it allows them to stay in this huge market.
Many successful advisors have been operating under a fiduciary standard all along. If some people have exited the pension market to avoid fiduciary status, those successful fiduciary advisors and any new fiduciaries who step up to the plate will be the beneficiaries.
Carol I. Buckmann, JD is the co-founding partner of Cohen & Buckmann, P.C. (www.cohenbuckmann.com). She is one of the top-rated employee benefits and ERISA attorneys in the U.S., and deals with some of the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation.
The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust, its subsidiaries or affiliates.