The Rule That Schooled But Never Ruled

Reflecting on the DOL fiduciary rule, many retirement plan advisors mentally compartmentalized the entire multi-year experience somewhere between “a complete waste of time” and “added expense that contributed nothing to plan participants.” 

Plan advisors spent copious amounts time touting the arrival of the rule to plan sponsors, discussing how it would ultimately “make things better” for them and their participants. Seasoned advisors can recall discussing the rule starting in 2010. As the DOL regulatory progress advanced, advisors shared concepts and what they knew about the thinking among DOL officials. As privileged conversation and meetings became public knowledge, advisors had more to share with clients and prospects. This discussion was commonplace in sales presentations and as agenda items discussed during regular Retirement Committee meetings.

Retirement plan advisors were actively sharing that after the implementation of the rule, no fiduciary would need be concerned with an advisor’s intent because plan sponsors’ and advisors’ interests would be aligned. Upon the implementation of the rule, the investment segment of the retirement industry would be transformed, and best interest contracts and disclosures would protect participants and fiduciaries from the vagaries of investment professionals with bad intent. The message would be clear and there should never again be a concern with whose interest was being served in a retirement account. 

Read more commentary from Steff Chalk here.

This message was just what plan sponsors wanted to hear at the time. Implementation of the fiduciary rule would make all-things-retirement better for everyone! 

But sometime between March 15, 2018 (when the 5th Circuit Court vacated the DOL fiduciary rule) and June 21, 2018 (when the 5th Circuit Court of Appeals issued a mandate vacating the rule), the “New Fiduciary Rule” became the “Not Fully Implemented Fiduciary Rule.” 

Was it Worth the Time and Expense?

The answer to that question from most people remains a resounding “No!” There are many investment, broker/dealer, recordkeeping and insurance-based organizations that spent in excess of $10 million apiece to comply with the rule. Many advisor teams and individual RIAs suspended projects to change affiliations or change business models to comply with it. These expenses and rework contributed zero to plan participant accounts. To find any favorable outcome from the Not Fully Implemented Fiduciary Rule, one must look elsewhere. 

The Present-day Plan Sponsor

During fiduciary education programs over the last 6 months, I have been informed by plan sponsors that it is uncomfortable to be told “something is going to be better for us” and then learn “we’re no longer going to receive what you told us was going to be good for us.”

The coming and going of the fiduciary rule has created an entire generation of informed and more responsible plan fiduciaries. Plan sponsors have been awakened, as active participants in a classic loss-aversion scenario with the Not Fully Implemented Fiduciary Rule. (Loss aversion in the form of “losing something of value” is demonstrated as the monkey-and-pieces-of-apple study in the book, Save More Tomorrow, by Richard Thaler and Shlomo Benartzi.)

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Spring issue of NAPA Net the Magazine.