Tug-Of-War By: Gabriel PotterMBA, AIFA® 2017.08.02

At its heart, the Department of Labor’s fiduciary rule was supposed to expand the responsibility of financial advisors that deal with retirement money.  If you, as a broker, make financial and investment recommendations on money which had been earmarked for retirement - say, in a 401(k) or IRA - then you have to act as a fiduciary (i.e. in the best interest of your client) in regards to your recommendations. 

At a basic level, this seems like a better deal for customers and a worse deal for Wall Street.  So, the implementation of the fiduciary rule was never going to be an easy pill to swallow for Wall Street firms which had long benefited from a business model which avoided culpability.  However, they had negotiated some exceptions from the rule - for instance, the B.I.C.E. best interest Contract Exemption.  Many large broker dealers begrudgingly begun to comply with the new guidelines and some have already modified their business practices to conform to the new legislation. 

Despite this progress, the battle for the old business model is not over yet.  There are outstanding Requests for Information to the DOL which include a back-and-forth “comment period” between the DOL and industry players.  This FIF opens the door for clarification on what the new standard actually requires financial players to do.  There are ongoing efforts to lobby the DOL into letting the responses to that Request for Information act as a return to the previous suitability standard for broker dealers.  For example, the Financial Services Institute, or FSI, continues their attempts to challenge, nullify, and weaken the DOL’s fiduciary rule and is advocating strongly for weakening the DOL standard as originally written through the responses of the forthcoming RFI. The FSI is trying to make BICE exemptions simpler to create, standard for all investors, and broadly applicable to IRA rollovers – the core of retirement wealth directly managed by broker dealers.  Enforcement for the law has already been postponed until January 1st, 2018 and another industry trade group, the Investment Company Institute, is trying to extend the delay enforcement until January 1st, 2020. 

In contrast to the push back from the broker dealer community, individual RIAs have business models which are more conducive to the proposed fiduciary standards than large Wall Street institutions.  Similarly, individual advisors also seemed to accept the new law and there has been a notable increase in fiduciary education and designations; fi360 recently announced a milestone of 10,000 active Fiduciary Professional designees – AIFs, AIFAs, or PPCs.  There is a real tug-of-war between financial services players which have disparate compatibility with the new fiduciary standard. 


Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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