Editor’s Note: This is an edited and significantly abridged version of a column Mr. Carosa posted on FiduciaryNews.com. You can read the full article here (free registration required).
What if the fiduciary rule doesn’t matter anymore? Is it possible the spark it has caused has lit a fire that will endure regardless of whether the actual rule is ever implemented?
More ironically, with this fire now lit, is it possible that all investors – both retirement savers and retail investors – may be better off if the current version of the DOL’s new “conflict-of-interest” (a.k.a. “fiduciary”) rule never sees the light of day?
The consensus believes, for all practical purposes, the rule is dead. How it will die will remain a mystery until after Jan. 20, 2017. It could be that the Trump administration will simply leave it on the books but not do anything to enforce it. While this is possible, it is unlikely. First, non-enforcement is evidently what the DOL had in mind from the beginning. In their initial press briefing, DOL officials suggested the rule would be enforced by private attorneys.
Second, a case could be made there is at least some bipartisan support to stop the bill from being implemented (nearly all the Republicans and even a few Democrats have spoken against it). Though it’s not a priority for the Trump administration, it could be used by Congress as a bargaining chip to ensure some of Trump’s top-priority legislation does get passed quickly. So it’s more likely that Trump’s DOL will at least delay implementation if not outright kill the rule.
But does it matter?
Thanks in part to the attention paid to it by pop culture, the rule appears to have released what can only be described as the “spirit” of “fiduciary.” It is this “spirit” that is more important than the rule. It transcends the rule. That the rule forced “fiduciary” into the marketplace demonstrates this. Once released into the marketplace, it will be nearly impossible to take it back. Houston, Fiduciary Base here, the Eagle has landed. The proverbial genie is out of the bottle. We don’t need regulators when we have the marketplace. Brokerage firms have already chosen on which side of the fiduciary line they wish to play. You can anticipate marketing campaigns that reflect this, further embedding the idea of “fiduciary” in the mind of the consumer. The EBSA’s Phyllis Borzi recognized this even before the election (see “Exclusive Interview with Phyllis C. Borzi: Independent ‘Business Decisions’ May Lead Companies to Apply Fiduciary Standard Broadly,” on FiduciaryNews.com).
So, where does the rule go from here? Clearly, there are ways to improve it if necessary. However, it’s a reasonable bet to say the Trump administration’s first job won’t be to add more regulations, but to eliminate them. Which brings us back full circle.
The playing field is still uneven. This remains the real issue, and it is fundamentally a regulatory issue. We can’t have one side calling themselves “advisers” and being held to a higher regulatory standard while another side can call itself “advisors” and not be held to that same regulatory standard. By focusing on conflicts of interest, the DOL swept aside this very real concern. Yes, it’s the SEC’s responsibility, but the issue only adds to confusion among all investors (both retirement savers and non-retirement savers). And yes, the DOL exposed the folly of treating tax-deferred vs. taxable accounts differently, but the real issue remains that “advisers” and “advisors” are not held to the same regulatory standard. With or without the DOL rule, this is the vital question that needs to be answered.
Trump has always dreamed big. He wants to return to the moon. That makes sense for a lot of reasons. Call it a “reset” of sorts.
Maybe it’s time for a reset on the fiduciary debate. And this time, let’s not stop with the job half done.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
Christopher Carosa is a keynote speaker, journalist, and the author of 401(k) Fiduciary Solutions, Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort and several other books.