The DOL Fiduciary Rule: Where We Stand

Cheri Franklin |
Categories
401(k)
Clarity Capital Advisors
DOL fiduciary rule
Jay Franklin

You may recall that the Department of Labor Fiduciary Rule is the requirement that financial advisors to retirement plans (and by extension IRA accounts) are required to act in the best interests of the plan participants (or IRA accountholders). At Clarity, we have been long-time supporters of this concept, as it appears motivated by both commonsense and the sub-optimal (to put it charitably) investment experience that has adversely affected the level of retirement savings for millions of hardworking Americans. The rule was scheduled to phase in starting in April, but it has now encountered an obstacle that calls its future into question.

On February 3rd, President Trump signed a memorandum to the Secretary of Labor (Andrew Puzder) who, as of this writing, has yet to be confirmed. The memorandum directs him to prepare an updated economic and legal analysis concerning the rule’s likely impact on three things:

  1. The level of access to retirement savings products, information, or related financial advice.
  2. Whether the anticipation of the rule has already resulted in “dislocations or disruptions” that may adversely affect investors or retirees.
  3. Whether the rule is likely to cause an increase in litigation, and an increase in the prices paid by investors must pay to gain access to retirement services.

Depending on his findings, the Secretary may propose revising or even rescinding the rule. Either way, the implementation will be postponed for six months. Interestingly, a U.S. federal judge (on February 8th) upheld the Fiduciary rule in an 81-page ruling that could be viewed as a rebuke to the President’s directive. This was the third such rejection for a lawsuit-based challenge to the rule. As the legal director of Better Markets (Stephen Hall) said, “The decision issued today is definitive and sends a message that ought to put a stake through the heart of [the financial] industry’s efforts to destroy this common-sense rule.”

Having now seen many retirement plans that have been ill-served by the Suitability rather than the Fiduciary standard, we at Clarity hope that the Secretary of Labor will do the right thing for workers and retirees and persuade President Trump to support him. It not only makes economic sense but political sense as well since we are talking about a very large group of voters.

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