by  /  News, Retirement Planning

Before we broaden our investigation into retirement planning, let us take a moment to consider the heated activity on the DoL’s Fiduciary Rule for investment advisors to retirement plans. Please refer back to my previous two submissions if this discussion is new to you. In the two months since the Rule was passed on April 8, 2016:

  • The House passed a bill to revoke the rule on April 28, 2016.
  • The Senate passed a bill to revoke the rule on May 24, 2016.
  • President Obama promised to veto any such bill that reaches his desk.
  • The SEC announced on May 20, 2016, that it expects to release its version of the fiduciary rule in April 2017 [after a new President takes office].
  • Four financial advice trade associations, the U.S. Chamber of Commerce and four other related groups filed a lawsuit on June 1, 2016, in the U.S. District Court for the Northern District of Texas (Dallas), where the Fifth Circuit Court of Appeals is believed to be particularly friendly to the financial industry, rather than consumers.
    • The U.S. Supreme Court’s current 4-4 split could result in them making no decision and leaving the 5th Circuit’s decision as the final word.
    • First, the case will face a three judge appeals panel and then possibly an en banc hearing and decision by the Fifth Circuit.
  • The next day, June 2, 2016, the National Association of Fixed Annuities filed a similar lawsuit in the U.S. District Court for the District of Columbia.
  • Both lawsuits allege that the fiduciary rule, the best interest contract exemption and the other related prohibited transactions are “arbitrary, capricious and violate the First Amendment to the Constitution. The [Rules] should be vacated and the [DoL] should be enjoined from implementing or enforcing them in any nature.” [The Complaint].

The industry plaintiffs argue that they should not have to spend the resources to implement the rule, until courts have approved it, and the next administration is in place. The DoL responds that the rule has had a huge amount of exposure and is lawsuit proof. All parties acknowledge that delaying until after the presidential election could result in the death of the rule, depending on who is elected. Perhaps the industry plaintiffs believe that either new administration will be more user-friendly than the current administration and just want a delay. They had successfully deadlocked the SEC and Congress into no action positions on the fiduciary rule, but who would have thought it could come from the DoL? They were mistaken in their beliefs.

Why, again, do we care about the fiduciary rule?  Why can we not let the brokerage industry operate as they always have, subject to a lower suitability standard and free to charge whatever fee the account will bear?  What is so special about qualified retirement plans and IRAs that they require a separate fiduciary rule and more protection than our individual investments with our brokers? Why should investors have access to the state and federal court system for their complaints, rather than a broker-friendly arbitration system interpreting the contract of adhesion that the modern day brokerage contract has become?

Perhaps a more pertinent question is why has the brokerage industry brought out every possible means of blocking what has been described as a “watered-down,” “toothless” fiduciary investing rule? Why are they so concerned about being held to a fiduciary standard of care in acting on behalf of their clients? What about brokers’ means of compensation is not fair to the client and why do they insist on maintaining these unfair practices? Why should delaying implementation of the fiduciary rule beyond the scheduled April 2017 effective date [thereby giving them time to once again freeze the rule into legislative and regulatory limbo] serve as a victory to those who wish not to be considered fiduciaries to their clients?

When we return to the trials and travails of funding an adequate retirement in the next posting, we will likely appreciate the utility of having our advisors acting in a fiduciary manner, with our best interests in mind, when they handle our precious retirement assets.

Remember, it’s not what you make that matters…it’s what you keep!

The general information herein is not intended to be, nor should it be treated as tax, legal, or accounting advice, nor can it be used for the purposes of avoiding tax penalties.  Please seek advice from an independent tax advisor before acting on any information presented.