Last week the U.S. Court of Appeals for the 5th Circuit threw the fiduciary rule a curve with its 2-1 decision and the Labor Department now says it won’t be enforcing the rule while it reviews the decision. Speculation is… rampant. So, what do NAPA Net readers think – and hope – is next for the fiduciary rule?
As for next steps by the Labor Department, opinions were mixed (to say the least), with roughly one in five leaning toward a call for an en banc hearing of the full 5th Circuit on the case, but nearly as many (17%) expecting the Labor Department to do “nothing,” but keep working on that analysis of the rule’s impact called for by President Trump more than a year ago, and another one in eight simply expecting them to do “nothing.” That said, roughly 1 in 10 expect them to appeal the decision, and another 12% expect an appeal to the U.S. Supreme Court. “Pull the rule and let the SEC conduct its rulemaking. States will then start passing their own fiduciary rules,” commented one reader.
Perhaps most telling, however, is that the most frequent response from readers was “I can’t even guess,” chosen by nearly a third (30%).
Now, there’s what you think will happen, but we also asked readers what they hoped the Labor Department would do. The results were no less varied, but the order was certainly different. Just under a quarter (24%) said they hoped the Labor Department would appeal the case to the U. S. Supreme Court, though nearly as many (19%) were wishing that the DOL would do “nothing, but keep working on the analysis of the rule’s impact.”
“Something – anything” was the choice of 17%, but just as many were hoping they would do nothing, and 14% wanted an appeal of the decision. A mere 5% wanted a call for an en banc hearing.
Asked, in view of where things stand currently, what they would do, it looks to be status quo for most respondents to this week’s NAPA Net reader poll; nearly 47% said, “We'll continue to do what we have been doing, in compliance with the rule's current requirements.” Another third (32%) said “We’re already ready for the fiduciary rule (including the full BIC applicability)!” As one reader observed, “The fiduciary rule never really impacted us – we already assumed fiduciary status. If anything, it just created great opportunities in the market for us to sell against other non-specialist or non-fiduciary advisors.”
Fourteen percent split between “whatever my firm/boss says we’ll do” and “we’re still reviewing it as well,” while the rest simply said, “We’re taking a pause.”
So, regardless of what the Labor Department does next (or when), and what is planned in the interim, where do NAPA Net readers think it will all come out… eventually? A strong plurality – nearly a third (32.56%) – went with, “The SEC weighs in and takes the lead.” The rest said:
19% - The fiduciary rule eventually takes full hold – but is modified by the Trump administration.
14% - The SEC weighs in, integrating its rule with that of the DOL.
9% - Fiduciary rule is applied to ERISA plans only – the accounts (IRAs) and investments that the DOL wasn’t deemed to have control over before will revert to pre-fiduciary rule status.
7% - Fiduciary rule is set aside, and we go back to the way things were.
4% - The fiduciary rule eventually takes full hold, but is significantly modified by the Trump administration.
And 17% responded “some combination of the above.” As one reader noted, “Too many choices here to choose. Many of the above are anticipated to happen, but who knows which one or ones will it be. Under Trump administration, there will be change(s)”.
Though provided as options, no respondents chose:
- The fiduciary rule eventually takes full hold, with the BIC full applicability, as currently scheduled.
- The fiduciary rule eventually takes full hold, but later than currently projected (July 2019).
- The DOL completes its evaluation, concludes that the fiduciary rule as currently defined has a massive negative impact, and starts over.
- Including, as it turns out, “OMG – I can’t even guess.”
As you might expect, we got a lot of interesting reader comments – here’s a sampling:
“Hoping it's start over,” said one. “I like the idea in spirit, but in practice there are currently too many traps for the not-necessarily-unscrupulous, but unwary.”
“I don't feel the DOL ever really had the authority to apply the fiduciary rule to IRAs – but the SEC does. So I think the SEC will weigh in and integrate with the DOL rule. However, it will takes years for that to come to fruition, so my best guess is that the fiduciary rule continues to apply to ERISA plans only in the meantime. I don’t really see how, as an industry, we can go back to the pre-fiduciary rule world. What investor is going to accept that you can make recommendations that are not in the investor's best interest?”
“Please let the SEC act!”
“How’s it coming with working with the SEC? Or maybe that should be phrased, ‘Is there a chance two agencies can work together on this and shortcut some time so we actually get a rule we can implement (and stop yanking us around)?’”
“Mid-terms could impact decision/direction the rule takes. Hopefully, there will be a lining up of SEC fiduciary guidelines and the BIC is adjusted to remove private right of class action.”
“The real advisors in this market have already updated their business models to the best interest and will continue to do so.”
“I wish we could start over in a non-political way; the SEC and DOL should have a well-crafted, well thought out set of rules that are principles based and fully coordinated. It should be safe harbor based for compliance, not a contract based solution; under the current rule, ‘doing the right thing’ became an onerous burden for those of us trying to do right by our clients every day.”
“The long-term trend will be toward what the 2015-2106 rulemaking tries to accomplish – aspiring to a prudence standard while tolerating conflicted advice and seeking methods to moderate the severe conflicts.”
“Even if the rule is struck down or the DOL withdraws it, states will still pass their own rules unless Congress preempts the field somehow (which seems unlikely in the near term).”
“Being a fiduciary is a good thing, but implementing a rule that limits the choices of investors and raises their costs is contrary to the spirit of the rule. Let’s start using common sense and do what’s best for the client, even if the regulators do not require it.”
But my favorite comment this week was from the reader who observed, “At this point, the only sure things in life are death, taxes, and change.”
Thanks to everyone who participated in our weekly NAPA Net Reader Poll!