Was It Right to Kill the DOL Fiduciary Rule? Bloink & Byrnes Go Thumb to Thumb

Bloink: The rule was broadly applicable, and that was its intent.  Prior to the introduction of this rule, a myriad of different standards of care could have applied to an advisor based on often subjective criteria.  Because of this, advisors and clients often were unclear as to the required duties of the advisor, meaning that a client was extremely unlikely to challenge an arrangement that may have been conflicted.  Even more important, the client probably wasn't even aware that conflicts of interest on the advisor side were an issue.  The rule was designed to protect these clients, and maybe it needed fine-tuning, but vacating the rule entirely was not the ideal solution.

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Byrnes: Even if the rule was designed to protect clients, it wasn't going to do the job.  What the rule was going to do was increase the cost of providing retirement-related advice for middle class clients who may have needed that advice the most. Instead of gaining access to "fiduciary"-level advice, many clients may have found themselves with no access to advice at all.

Bloink: This is a trillion-dollar industry we're talking about.  There's plenty of room for advisory arrangements at all price points, and I don't think we would have seen a reduced access to advisory services for the middle class.  Further, the publicity surrounding the rule itself has generated a huge awareness of the fiduciary issue, meaning that the "best interest" standard is on clients' radars now.

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Byrnes: No one is saying that acting in a client's best interests is a bad thing, but there is no reason to hold such a wide range of advisors to this standard, especially those engaging in one-off sales transactions with a client who is requesting a certain financial product, such as an indexed annuity.

Bloink:  The point is that the fiduciary standard isn't going away. The SEC rule is already in the works, and the old five-part test for determining fiduciary status has gained new attention.  What we have now is another situation where advisors aren't really certain which standard they will be expected to adhere to with respect to any given client, and no one knows what new rule the SEC is finally going to pass or whether the DOL will take another crack at a new fiduciary rule on their end.

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Byrnes: If a new rule does emerge, I think that we can expect it to be much more narrowly tailored to apply only to the types of advice arrangements that truly call for increased regulatory scrutiny. That's exactly what the court was saying when they vacated the DOL rule—we need something more narrow, a rule that only applies to advice structures where an ongoing relationship exists between advisor and client in certain specified types of circumstances.

Bloink: Fair, but in my view that says that it wasn't really necessary to vacate a rule that firms and advisors had already spent significant amounts of time and money coming into compliance with.  Simple amendments could have fixed any issues with the DOL rule. Now, it's entirely possible that firms will have to start at square one in order to develop new procedures for complying with a new set of rules. Like I said, the fiduciary standard is not going away, and firms need to watch out for what comes next.

— More Bloink & Byrnes Go Thumb to Thumb:

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