Is the DOL Fiduciary Rule Here to Stay?

We heard some good news about the Department of Labor’s (DOL) new fiduciary regulations last week. William McNabb, chairman and chief executive officer of Vanguard, said at the Morningstar Investment Conference last week that he believes the new regulations will be enacted, despite a flurry of lawsuits filed against the new rules.

McNabb said, “We think the final version is not perfect, but workable. Net-net it will be a positive for the industry in the long run.” In Vanguard’s McNabb Sees DOL Rule As Here To Stay, Debbie Carlson reports that McNabb said Vanguard will need only to make a few changes its 401(k) business, primarily adjusting documents relating to IRA rollovers.

Nine organizations, including the U.S. Chamber of Commerce and the Financial Services Institute (FSI), filed a suit in early June in U.S. District Court for the Northern District of Texas against the DOL rule that requires advisors to act as fiduciaries when advising on retirement accounts.

Of course, it’s come to light that the U.S. Chamber of Commerce is not as interested in protecting the “little guy” as they proclaim to be. In U.S. Chamber Fight Over DOL Rule Is A Facade, Reuters’ Mark Miller writes, “The U.S. Chamber of Commerce wants you to believe it is looking out for the little guy in its fight against new government regulation of the retirement investment advice industry. But that is a facade — as one consumer advocacy group found out when it checked the Chamber’s claims of grassroots support for its battle to stop the U.S. Department of Labor’s new ‘best interest’ standard for retirement advice.”

Specifically, Public Citizen, a nonprofit consumer advocacy group fighting the Chamber on the fiduciary issue, found that the views of many of the small business owners were misquoted by the Chamber. Miller noted that “One leader of a Chicago nonprofit told Public Citizen he did not have a view on the rule and asked what he needed to do to get himself removed from the website. One small-business owner told the watchdog group he favors an even tougher rule. Eight people listed actually are officials at local chambers of commerce or lobbyists, according to the group.”

Miller correctly deduces that the “fight is really about something else — $19 billion in potential lost revenue now controlled by stock brokerage, life insurance and other companies that do not want to make drastic changes in their business models.” He notes that the $19 billion was estimated by Morningstar.

As challenges to the DOL ruling continue to come from trade groups and from Congress, I reiterate my unwavering belief that all financial advisors should always avoid conflicts and act in the best interest of clients. The argument that opponents of the rule continue to trot out — that the regulation will prevent small account holders from getting professional advice — is simply untrue. Their confused position seems to be that there is value in conflicted advice.

Of course, the facts prove otherwise. A report by the White House Council of Economic Advisors estimated that small investors lose $17 billion annually due to conflicted advice that places them in risky or inappropriate investments by conflicted advisors.

$17 billion! That’s worth fighting to protect.

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