The DOL Fiduciary Rule is Officially Dead

Over the past several years, Bollin Wealth Management has been following the Department of Labor’s fiduciary rule that was initiated under the Obama Administration.  The Fiduciary Rule was to begin implementation in April of 2017, with full implementation of the rule scheduled t for January 1, 2018.

Shortly after taking office in 2017, President Trump called for a review of the Fiduciary Rule that subsequently led to an initial delay in implementation until June of 2017.  Further reviews led to a longer delay, with full implementation delayed until July 1, 2019.  However, on June 21, 2018 the 5th Circuit Court of Appeals confirmed its March 19, 2018 decision to vacate the rule.  The court’s decision effectively kills the Department of Labor’s Fiduciary Rule.

Over the years, we have written several articles about the progression of the DOL fiduciary rule.  In all of our articles on the subject, Bollin Wealth Management has not been in favor of the DOL’s fiduciary rule for a few different reasons.

The first reason we have not been in favor of the DOL fiduciary rule is that the rule was written poorly, and it has caused confusion among the various parties involved.  At times throughout the development process, various exemptions and loopholes were introduced, and there were gray areas about what types of rollover transactions would be permitted.

Another reason Bollin Wealth Management has never been a proponent of the Department of Labor’s fiduciary rule is the existence of the fiduciary rule’s best interest contract exemption (BICE).  A concession to the brokerage firms, the best interest contract exemption permitted advisors acting as fiduciaries to be compensated in a manner they would otherwise be prohibited from receiving under the fiduciary rule.  Receiving commissions and revenue sharing are two examples of these otherwise prohibited compensation types.

Most contracts and paperwork that clients fill out and sign are confusing and full of legal language and industry jargon.  In many cases, clients are not fully aware of everything they are signing.  The BICE would give unethical and unscrupulous brokers and advisors the opportunity to circumvent the intent of the fiduciary rule and clients would have unwittingly signed off on that behavior.  The BICE provision in the ruling effectively made all advisors look the same, while providing a loophole for some advisors to act in a manner that was not in a client’s best interests.

The final reason the advisors at Bollin Wealth Management were not fans of the DOL fiduciary rule is that it only covered retirement plans and qualified accounts.  Because of delays with the Securities and Exchange Commission (SEC), President Obama charged Department of Labor Secretary Thomas Perez with the task of implementing a fiduciary rule.  The only problem with this strategy is that the Department of Labor only has jurisdiction over retirement accounts and plans.  Regular investment accounts were not afforded fiduciary protection under the now vacated rule.

Looking ahead, the Securities and Exchange Commission appears to be firmly in the driver’s seat in the effort to reform investment advice standards.  To that end, the SEC is taking public comments on the matter until August 7, 2018.

We at Bollin Wealth Management are of the opinion that a fiduciary rule is unnecessary, and a new fiduciary rule is likely to cause confusion among investors.  Currently, investors can choose to work with a fiduciary (an advisor with an obligation to act in a client’s best interests) by choosing to work with a Registered Investment Advisor (RIA) firm.  Alternatively, investors can choose to work with an advisor who will provide suitable investment advice (which may not always be in the client’s best interests) by working with a registered representative of a broker dealer.

Since the distinction between advisors already exists, maybe a coordinated effort to educate investors on the types of advisors would be the better course of action rather than developing a new fiduciary rule.

Sources:  Investment News, Wall Street Journal