The DOL’s Fiduciary Rule Still in Limbo

With U.S. President Donald Trump past the official 100-day honeymoon period of his first term, I’d like to be able to report a little more certainty on the fate of the Department of Labor’s (DOL) fiduciary rule.

Unfortunately, it’s about as clear as a fog-shrouded Statue of Liberty standing in the New York City Harbor.

First, allow me to recap. The goal of the DOL’s new rules set forth under former President Obama’s administration, originally set to go into effect on April 10, is to prevent investors from paying unnecessary high fees and commissions on holdings within retirement accounts. That’s the simplified version, and I’ll try to keep this entire article that way.

However, less than a week before that deadline hit, newly elected President Donald Trump—who vowed to loosen restrictions across a number of industries, including finance—delayed the deadline until June 9. In a memorandum, Trump directed the DOL to review how the rule might adversely affect the ability of Americans to gain access to retirement information and financial advice, and to update the economic and legal analysis of the rule to gauge its potential impact.

Trump left it up to the DOL to rescind or revise the rule accordingly.

Since April, it’s been all quiet on the fiduciary front from Capitol Hill, but many advisory firms remain focused on preparing for the impending deadline as though nothing earth-shattering will change. The consensus is that the rule passed in 2016 won’t be completely repealed, although another school of thought thinks the rule will be significantly loosened, allowing more financial advisors to avoid compliance.

Just about everyone agrees that the gut of the rule—having financial advisors act in the best interests of their clients—is a standard that should have been adopted years ago. Both sides of the coin—advisors and clients—stand to benefit and face challenges.
As is, the DOL rule not only increases compliance costs for financial services companies it most likely will raise the costs of liability created by a new legal right for consumers to sue for breaches of fiduciary standard.

The concern for investors is that small- and middle-wealth clients could get priced out of the advice market. Because fiduciaries will be held to a higher standard of care, higher liability, more compliance, and more work, he or she may be too expensive to hire, which could force those with less assets to self-manage or look to robo-advisors for guidance.

The bottom line: as the DOL sorts through the thousands of comments it is likely receiving on the rule, a timeline and final rule, will become less cloudy. No one knows the exact date or what changes, if any, the DOL will recommend. Time is running out, though. June 9 is right around the corner.

For those firms that have announced plans to abandon commission-based products and adopt fixed, fee-based products don’t need to be concerned with what the DOL or Trump decide.

Merrill Lynch did away with new commission-based IRAs at the beginning of this year. Wells Fargo told advisors it expected some form of fiduciary standard to eventually be implemented and was working toward that, and Morgan Stanley said it would “continue to move forward with many of the initiatives” the company already had underway.

Others planning to stay the course include, Commonwealth Financial Network and LPL Financial, along with insurance companies American International Group, Inc., and Principal Financial Group, Inc.