What Should You Say About the Department Of Labor’s Ways?
April 19, 2016
by Wendy Cook
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While the Department of Labor’s (DOL’s) fiduciary ruling is not a death knell (unless, perhaps, you’ve been peddling some seriously toxic investment products), you might think it was, given last week’s glut of headlines in the financial press. I’ve seen all five of Kubler-Ross’ famed stages of grief on exhibit: denial, anger, bargaining, depression and, ultimately, acceptance.
I have experienced these myself. For some time, I doubted that the DOL would ever achieve a ruling. When they actually did, I was angered by some of the last-minute gaps that were left in what could otherwise have been a more solid fiduciary stronghold. While I am in no position to bargain with the DOL, I worried about whether the ruling was a good or bad thing for investors.
In the end, I have accepted that we should think of the ruling as a modest victory for investors, and that, by and large, we should communicate it as such.
That’s not to say you must or even should ignore the rule’s shortcomings, which seem dangerous to evidence-based investing in a couple of important ways.
Department of Labor – Best interest, really?
First and most importantly, I worry that some of the capitulations (or “improvements” to paraphrase Secretary of Labor Thomas Perez) mean that investors will continue to be exposed to inferior advice and sub-par products, at least for the foreseeable future. With the delayed implementation and contract exemptions that still allow for commissions and revenue-sharing, I fear implementation may fall short of truly being in investors’ highest financial interests, despite the Department of Labor’s best intentions.
To borrow Perez’ own analogy, if a Ford dealer is permitted to remain mum about a better-made Chevy “investment,” how could that non-act of silence be positioned as an act of best-interest advice? The answer is, it cannot. And a universe still containing variable annuities, non-traded REITs and similar products and practices defies the laws of fiduciary physics.
Whoops, I’m reverting back to that anger stage. Suffice it to say that some of those last-minute “improvements” have left some pretty wide holes for looping through.
The other reason I am peeved by the Department of Labor’s ruling is that it has just become officially harder for truly fiduciary advisors to differentiate themselves from Wall Street’s business-as-usual crowd. It just became easier for those usual crowds to claim to be fiduciary, whether or not they even want to be.
If you’ve been serving in a fully fiduciary capacity all along, I hope it’s because you would be doing so anyway; it’s what your clients deserve and no less. But at least up until now, you’ve been able to cite your focus on fiduciary as a quality that investors would be hard-put to find elsewhere.
Now, as if “fiduciary” weren’t already hard enough to describe, the term just got muddier, sullied by a laundry list of exceptions to the rule that we’re likely to see buried in ironically named Best-Interest Contracts (BICs).