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The Incredible Shrinking DOL Fiduciary Rule – The Latest Saga In A Never-Ending Drama

Now that the DOL Secretary Acosta is in place, experts believe that the undoing of the DOL fiduciary rule will start in earnest. A NAPA post claims that Acosta aims to freeze the rule for good based on communication with Senator Tim Scott (R-SC) which the Senator’s office refused to confirm bordering on an outright denial. So after almost eight years of posturing and lobbying, will the DOL rule be emasculated and what effect could that have on the retirement industry?

For defined contribution (DC) plans like 401ks, the DOL rule punctuated a movement already under way where more and more advisors were willing to act as fiduciaries. In fact, it gives broker dealers more currency to force inexperienced advisors to either partner with a specialist or use preset programs and investment lineups overseen by 3rd party fiduciaries.

The real impact of the DOL fiduciary rule is on IRAs over which the DOL has no enforcement jurisdiction – the undermining of private rights of actions in the recent delay of the DOL rule may have disenfranchised lawyers ready to take up enforcement.

But changes by many broker dealers and RIAs eliminating potential conflicts of interest in IRAs and restricting activities of inexperienced advisors for DC plans will, in effect, bring about changes the DOL intended by the rule now under assault by the White House and possibly the new DOL secretary.

What could be lost is litigation rights of IRA investors possibly harmed by conflicted advisors who put their interest ahead of their clients. While critics of 401k and 403b lawsuits claim that participants in targeted plans received very little of the settlements or judgments, they forget to mention that fees have gone down considerably as a result and fiduciaries are paying more attention to their duties under ERISA. Lead plaintiff’s attorney Jerome Schlichter claims his actions and those of fellow lawyers have lowered DC plan fees by as much as .10%. Big savings. Has that opportunity been lost for IRAs not protected by ERISA overseen by a 3rd party plan sponsor fiduciaries?

At the NAPA DC Fly-in held in the Summer of 2015, advisors sent to lobby their congressional representatives were instructed to advocate for disclosure rather than removing potential conflicts as prescribed by the proposed DOL fiduciary rule.

Based on the effectiveness of 408b2 and 404a5 which relies on disclosure to help plan sponsors and participants understand fees paid to providers, disclosure covering conflicts would be essentially ineffective. Very few plan sponsors or participants read the fee disclosures and even fewer understand them. Would that be different for conflicts of interest?

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein

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