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Want DOL Rule Quashed? Careful What You Wish For

February 2, 2017

Since last November’s election swept Donald Trump into the White House, financial industry lobbyists have had a new spring to their step. The conventional wisdom among industry insiders has President Trump moving quickly to delay, then kill the Department of Labor’s fiduciary rule.

The only question in people’s minds seems to be how the new administration will go about achieving this regulatory rollback, not whether the man who campaigned as a populist would deny these powerful special interests a victory they’ve spent millions to achieve.

But that “victory” could come at a heavy price, not just for working families and retirees, but for non-fiduciary financial advisors who take pride in providing valuable services to their customers.

Because much as industry lobbyists would like to kill the rule without looking like villains, there’s no way to escape the fact that they are working “every minute of every day,” as one lobbyist put it, to kill a rule that holds financial advisors legally accountable for acting in their customers’ best interests. There’s no way to make that look good in the public eye.

And they’ve taken a position to achieve that end that might cause some of their members qualms. Specifically, in order to convince the courts that their members shouldn’t be subject to a fiduciary standard, Sifma, ACLI, FSI, NAIFA, IRI and FSR have argued in their legal briefs that their members aren’t really acting as advisors at all. Instead, they claim, their members are “mere salespeople” engaged in “arm’s-length commercial transactions” to whom no fiduciary standard should reasonably apply.

Is that how you view yourselves? Is that how you want your customers to see you? Because firms’ marketing material suggests otherwise, as our recent review of 25 ACLI and Sifma member websites makes clear. When firms are looking to attract clients, the image they project is as trusted financial advisors whose only purpose is to provide advice and guidance that clients can rely on and trust.

So the question is, who’s lying? Because both characterizations can’t be true.

If firms want to be perceived as “advisors” working to promote their customers’ best interests, then they need to publicly repudiate the argument their lobbyists made in court that broker dealer reps and insurance agents are mere salespeople, doing nothing more than selling a product.

If, on the other hand, the lobbyists’ characterization of their members’ business is accurate, then firms are engaged in a massive deception of the investing public when they promote themselves as advisors, and it needs to stop.

Empty claims to support a “best interest” standard aren’t going to cut it in the absence of any legally enforceable obligation to meet that standard.

Arguments, like Sifma’s and FSI’s, that an SEC rule can fill the gap are equally flawed: 1) because an SEC rule would only cover securities, not insurance and other non-securities investments, leaving retirement savers woefully under-protected, and 2) because the SEC’s record on this issue over the past two decades has been to make the problem worse, not better.

Having seen what a real fiduciary standard looks like, including meaningful requirements to rein in conflicts, investors aren’t going to accept a fake fiduciary standard that equates best interest with suitability, adds a few meaningless disclosures, and calls it a day.

And none of this is necessary. The campaign to kill the DOL rule comes amid mounting evidence that the rule is both workable and working as intended to reduce conflicts while preserving access to commission-based advice. This is good for investors and good for financial advisors confident in their ability to compete based on the cost of their services and the quality of their advice.

If, despite all the evidence of its benefits, the DOL rule does end up being overturned, it will be up to us, the community of investor advocates and educators, to help investors understand the difference between a real “fiduciary” advisor, and a salesperson masquerading as an advisor. Firms that “win” the fight to overturn the rule could end up paying the price: first in lost customer trust, and then in lost business.