On June 1, 2016 the U.S. Chamber of Commerce, Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute and a number of other organizations filed suit against the Department of Labor to stop the implementation of the new fiduciary rules.
Remember that the major thrust of the DOL's new regulations are to require brokerage firms to provide investment recommendations to their retirement clients (you!) that are in your best interest (not theirs). Right now, no such requirement exists for brokerage firms. That the brokerage community does not accept this new fiduciary standard with open arms should trouble you, especially if your 401(k) plan investment adviser works for one of these firms.
The current fiduciary rules that brokerage firms follow mean that your interests may be third in line (behind the adviser and his/her firm) when your adviser is considering an investment recommendation.
Full disclosure here. My firm is a Registered Investment Advisory firm and is required to provide investment advice that puts my clients’ interests first. Yes, there are two sets of rules. One that makes sense for you as a client, and one that does not.
Why brokerage firms oppose the new rules
Brokerage firms feel that they will incur additional costs in order to comply with the new fiduciary rules and that these new rules will harm their business models. In addition, they say that they will not be able to continue to serve smaller investors if the new rules go into effect. Let's take these objections one at a time. First, RIAs have always provided advice in a fiduciary environment that puts their clients’ interests first and at prices that, more often than not, are less costly than their brokerage firm competitors.
Second, the notion that brokerage firm business models will be harmed is silly. Changed, yes, to be more favorable to their clients. But harmed? It would be difficult to conceive that this would occur since RIAs have found this sort of business model to be perfectly viable.
Finally, those smaller investors with whom the brokerage community says it will no longer be able to serve will find a welcoming home with RIAs.
What is likely to happen
A number of experts have characterized this lawsuit as weak. DOL Secretary Thomas Perez has always expected to encounter legal efforts to block implementation and has consistently said that he intends to fight them vigorously. I believe the DOL will win.
In addition, you have probably heard that Congress is sending a bill to President Obama to block the implementation of the DOL’s fiduciary rules. President Obama has said many times he will veto it.
These new rules will go into effect. As an employer who sponsors a retirement plan, you should welcome that conclusion and be appalled at the opposition of the brokerage community to put your interests first.
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