Best Interest?

Even if you personally haven’t voiced your opinion on the new fiduciary definition, you needn’t worry because someone else probably has; the industry, the media and even Congress have been discussing and debating it since the rule was made public.

That the rewrite was five years in the making should have given me ample time to determine my position. And, though I know it generally, as I continue to reread the DOL’s 120 pages of text—and prepare to embark on my reading of the commentary submitted to the DOL—I discover many nuances about which I’ve yet to decide my stance. This makes me wonder how others are so completely for or against the proposal. After all, it has many differences compared with its first iteration.

I do believe a revision to the five-part test under the Employee Retirement Income Security Act (ERISA) is long overdue. Plan sponsors and participants have been disadvantaged in situations where, I believe, advice-givers should have been deemed fiduciaries, but because they perhaps met only three or four of the conditions under the test, they managed to avoid consideration as such. For those advisers to retirement plans who give advice but maintain you are not fiduciaries, it’s time to rethink how you do business.

Consider your plan sponsor clients’ perspective. In theory, broadening the fiduciary definition should, on the whole, be a good thing for them. After all, given that a plan sponsor is already a plan fiduciary and must make decisions for the benefit of the participants, shouldn’t the people providing them with advice and influencing their decisions about the plan and its investments sit on the same side of the table?

But, of course, it isn’t so cut and dried, which is no surprise in dealing with regulations. There are both questions left unanswered and positions hard to dispute. As I said, I can’t agree with those who say it’s a bad thing for individuals giving advice to be required to put the best interest of their clients first. I would like to hope, in fact, that many advisers not currently bound by this requirement are still mindful of their recommendations and consider what will most benefit their clients, not themselves. However, I do understand why some advisers take issue with this new best interest standard.

I also have no problem with an exemption that will allow advisers to accept variable compensation for products so long as they disclose it. I do, though, worry about some of the rule’s language concerning lawsuits that, as some have noted, might seem to encourage participants to take action—perhaps unnecessarily—against advisers.

At the heart of my own conflict is some uncertainty over how much of the rule is based on trying to protect participants—which I see as positive—and how much on confronting traditional business models of certain classes of advisers that the DOL has decided are bad—which I see as less productive. I found the proposal—or at least the DOL’s video, fact sheet and Web page introducing it—to be pitching fear, with phrases such as, “Are your retirement savings at risk?” If the rule is really about ensuring that participants don’t lose their protections under ERISA, shouldn’t it focus more on that and not on vilifying the individuals who provide education, advice and guidance? Are we expected to believe there is only one type of adviser or business model relevant to all Americans, regardless of asset size or investment expertise or interest?

We are still in the comment period as I write this, so whether the rule will change before it goes into effect remains to be seen. Whatever the outcome, I hope the final rule is workable and will increase the likelihood of success for participants, plan sponsors and the advisers who serve this market. If the result is participants getting less advice, less support and fewer options, I venture to say we need a different regulatory answer.