Do we even need the Fiduciary Rule? Don’t all advisors act in the best interests of their clients and give advice without conflicts?

OK, maybe there are a few “bad apples” and the Fiduciary Rule is needed to rein in these exceptions.  So why the significant vocal and litigious opposition to the Rule within the financial services industry?

Opponents to the Rule argue that investors with small account balances will lose access to financial advice, and that the Rule is an instance of unnecessary federal regulation.  Additional arguments are:

  • The Department of Labor exceeded its statutory authority to promulgate various aspects of the regulation—in particular, provisions affecting IRAs—and the DOL failed to follow proper rule-making procedures;
  • The ability for investors to now undertake class-action lawsuits for Rule violations will only result in spurious, costly lawsuits; and the most novel,
  • The Rule constrains sales pitches to clients and prospects in violation of a broker’s First Amendment right to free speech.

Supporters of the Fiduciary Rule have a cynical view of the objections to the Rule: some “advisors” simply have business models that require high, unreasonable compensation for providing services.  (The President’s Council of Economic Advisers had estimated excessive commissions at $17 billion annually.)  The Fiduciary Rule would require that they decrease their fees.  Such investment firms and their brokers prefer the status quo.  Why ruin a good thing?

We at NWCM (and other firms like us) have always acted as fiduciaries. And there are many highly ethical brokers doing good work for their clients. Some brokerage firms realize investors are becoming more savvy, and see the Rule as the impetus to make their business practices more transparent and compliant with a fiduciary standard.

Yet opposition persists.

Opponents to the Rule have had their day in court.  Four different courts, finding all arguments against the Rule unpersuasive, have sided in favor of the Department of Labor and the Fiduciary Rule.

Despite its legal victories, the Department of Labor, after spending five years working on the Rule, is now taking steps that may kill the Rule!