We’re seeing article after article tell us how compliance attorneys are parsing through the new DOL rule to provide tediously complex legal guidance on how their clients—typically large brokerage firms—can bring their operations in compliance with the fiduciary requirements. You’re hearing about the “Best Interests Contract Exemption,” and the loophole that allows companies to recommend proprietary products, and the possibility of using language that disclaims away the idea that anybody involved is acting in anybody’s best interests.
The focus of millions and millions of dollars worth of legal advice seems to be: “How can we keep selling garbage to the unwitting participants in qualified plans without running afoul of these annoying new fiduciary rules? How can we fool the regulators into thinking that we’re acting as fiduciaries while we conduct business as usual?”
Meanwhile, there is talk in the fee-only community about the complexities involved in “proving” that you really are a fiduciary, and compliance attorneys (who make their money helping brokerage firms find loopholes) are loudly proclaiming that the new law will come down hard on those fee-only ‘rogue brokers.’
I have to confess, I expected a lot of nonsense when the final rule came out, but even a cynic like me has been surprised at how much of it we’ve gotten. Can the brokerage firms not see that they need to change their fundamental attitude toward their customers, and turn their focus toward benefiting the public with their advice and product selection? Can the attorneys not see that the people who have chosen not to pay for complex legal interpretation really don’t need it, because they’re already on the right side of the fiduciary divide?
Meanwhile, let’s all remember a warning from the members of the Financial Services Institute (the independent BDs) and the wirehouses that they would absolutely have to stop servicing smaller accounts if a fiduciary rule was passed. Well, here we are. It’s time for those firms to step up and make good on that threat; after all (they told us), it’s impossible for them to provide advice unless they can sell annuities or non-traded REITs to the end customer.
Either start referring all of that business to the nearest fee-only planner or (and, of course, this is more likely) demonstrate in the clearest possible way that this “we won’t be able to serve smaller accounts” argument was just an empty lobbying-related talking point that had no actual basis in reality. If you’re going to continue to sell to these smaller plans, then I hope the fiduciary lobbyists will point to this clear example of (what else should I call it?) lying to the regulators as they’re trying to make basic policy decisions.
Of course, there’s going to be a legal challenge, probably filed by the insurance industry, probably joined by the brokerage firms, arguing that the DOL acted in haste when it took just six years and three rounds of feedback to finalize its rule. A panel of judges may also be asked to consider the adverse impact on certain (sales-related) business models. We (and the judges) will be told that the rogue regulators are conducting a “war on sales” that has to be stopped before it puts out of business the vitally-important companies that nearly put the global economy out of business back in 2008.
There is, of course, no “war on sales;” only a war on the sly misdirections of brokers, reps and companies that pretend to offer professional advice when they’re actually in the business of selling high-commission or in-house products to unwary consumers. My guess is the whole idea of a “Best Interests Contract Exemption” was a clever way for the Department of Labor to flush out companies that are really in the sales business, while still forcing them to act as fiduciaries. Whenever I see a company refer to BICE, I know that it will probably never be acting in the best interests of its customers.
If those companies want to call for a truce in the alleged war on sales, if they really want to continue business as usual, then let’s negotiate a settlement. Let’s stipulate that sales be clearly labeled as sales; that the rep tells the customer that he/she is there in a sales capacity, these are the products he/she is repping, and any advice the customer receives is designed to help consummate that sale.
Either that, or pay millions of dollars to some our best legal minds so that they can help maintain the fiction that people can rely on the advice of these sales reps disguised as advisors. We already know which option the brokerage firms and independent BDs have chosen; it just seems like an added burden that, for the next couple of years, we’ll all have to read about their attorneys’ arguments and other related nonsense in the press.