DoL Fiduciary Rule: ‘Disruptive but Manageable’

The fact that a major retirement industry player hosted a seminar on the proposal means the sector is getting serious about the ‘F-word’.

Golden Nest Egg

Gold nest egg hatching with light inside symbolising investments such as retirement and savings

The embattled slog to a federally mandated fiduciary rule that would make all dispensers of professional financial advice responsible to their clients before themselves has had many setbacks. With nearly the entire financial services industry against the U.S. Department of Labor’s second try at a proposal, along with opposition by most Republican legislators, some Dems and even a former DoL assistant secretary, it would seem that only a fool would bet on the fiduciary rule ever seeing the light of day. So it was with some surprise that I opened an invitation from Federated Investors to attend a one-day tutorial for financial advisers on the fiduciary rule and its likely effects on their practices. The mere fact that a day was given over to preparing 155 advisers for the coming fiduciary rule by a prominent financial services company — rather than rallying against it — seemed like a sign that the retirement industry has passed the protest stage and entered the realm of acceptance of a rule much fought over since its April 14 announcement. One thing was for sure: I was going to be at this event.

Following a delightful pregame dinner the night before at the Algonquin Hotel hosted by Federated, the Pittsburgh-based investment management firm with $351 billion in assets under management, and attended by financial advisers from coast to coast, I arrived bright and early at the Princeton Club in New York for what turned out to be a two-part program formally titled “DoL’s New Definition of Fiduciary Status Under ERISA.”

The morning brought lectures on fiduciary law given by two prominent law professors from Harvard and Yale. It became immediately apparent that, with the exception of the 1973 film The Paper Chase and its TV series spin-off, this was as close to an Ivy League law school class as I was going to get.

Chatty and colloquial, Harvard professor Robert Sitkoff, touted as the youngest in law school history to win an endowed chair, broke the ice by referring to “fiduciary” as the F-word. Federated also secured one of the country’s leading, longtime experts on ERISA, Yale Law School’s John Langbein.

The key takeaways from the lectures included Sitkoff’s statement that the way to ensure that an adviser acts in a client’s best interest is via fiduciary law. Such laws already exist on the state level for corporate directors and trustees. Langbein, who helped write one of these laws — the Uniform Prudent Investor Act of 1994 — made the point that, in the absence of a federal law, lawsuits have had to do the job of correcting the behavior of financial product salespeople.

It was only until after a much-appreciated, fortifying lunch, however, that the sparks began to fly. That’s because the previous assistant secretary of Labor, Bradford Campbell (2006–’09), and Tim Hauser, deputy assistant secretary of Labor and Campbell’s former employee, each in turn, excoriated and defended the department’s new rule.


Passions run high when it comes to a rule that would upend the the entire brokerage industry, causing them to come out to their clients as self-interested salespeople or take on a fiduciary role, as do registered investment advisers and certified financial planners who follow their own fiduciary standard.

Campbell’s talk was a blow-by-blow inventory of many of what he estimates are between 40 and 50 failings of the new rule. Key among these was the mantra that has been taken up by the financial industry: The rule will decrease the availability of advice — or, to others, sales pitches — to small retirement plans and small IRA owners. The reason: When and if stockbrokers can no longer, as fiduciaries, make money selling products, they will terminate these relationships, ultimately costing plan owners $100 billion annually.

Left to play both offense and defense, Hauser emphasized that the rule was created to protect retirement plan investors from sales pitches cloaked as advice. Poor investment recommendations are estimated to cost 100 basis points per investor, adding up to a total of $17 billion a year. “We want to make sure when someone turns to an investment professional, that professional serves their best interest,” said Hauser.

Whereas it was notable to hear Campbell say the sky was not falling, the final word goes to Federated Investors’ corporate counsel, Eugene Maloney. His conclusion: “To put rules and regs around an industry-in-being will be disruptive. But it will be manageable.”

Follow Frances Denmark on Twitter at @francesdenmark.

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