In my weekly blog post, I suggest that the DOL fiduciary rule will not really matter in the long run because the forces that are moving defined contribution (DC) plans like 401ks and 403bs as well as IRAs to a more conflict free world will and have taken hold even without the DOL rule. Though the rule will accelerate the movement, and cause short term distress, changes are happening and will continue whether the rules is delayed or even scrapped.
Remember Y2K? Experts predicted that the world would end because of archaic programs which, when the clock struck “2000”, would fail. Y2K fears pushed business to make massive investments in technology and infrastructure leading in part to the internet boom and a more connected world. Did Y2K cause these upgrades or create the disruption that many feared?
In 2012, the DOL disclosure rules, 408b2 and 404a5, were released and the DC industry feared that it would cause major disruption with millions of participants calling in to ask about fees that they did not know they were paying while, in turn, plan sponsors would change record keepers and advisors in mass. None of this happened but the rules did validate and accelerate the movement to a more transparent world which is now considered the norm.
At the heart of the DOL fiduciary rule is removing potential conflicts from those in a trusted position like advisors and providers whether that means eliminating commissions and revenue sharing that vary from product to product or limiting incentives for advisors to move participants into IRAs when it might be better to stay in the company’s plan or into high commissioned annuities. Some lobbyists and associations that more disclosure will solve the problem but, based on the limited impact and understanding of the disclosures under 408b2 and 404a5, the DOL choose to eliminate the conflicts entirely.
Plan sponsors are waking up and the move to a fee based fiduciary world is pushing some advisors out of the DC market entirely while others see this move as an opportunity. Enlightened broker dealers have already taken steps to limit some commissioned products and train interested advisors while many providers are moving to a no-revenue sharing environment. The DOL rule did not cause these changes but it has highlighted the issues exposing some advisors and providers while providing opportunities for others accelerating the changes.
Whether the DOL fiduciary is delayed or scrapped, the toothpaste is out of the tube – there is no going back, DOL rule or not.
