Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
A decade ago, fiduciary opponents sought to weaken fiduciary advice. SIFMA's July 2011 comment letter is a good example. But fiduciary advisors fought it tooth and nail.
Today, fiduciary opponents have embraced a more ambitious objective – to eliminate fiduciary advice. They are not seeking this legislatively, but in interpreting rulemaking.
They want to make fiduciary meaningless through language that is unclear and ambiguous or redefines words and concepts to serve special interests. The testimony of fiduciary opponents on the proposed DOL Retirement Security Rule are clear evidence.
On December 12, 19 groups or interested individuals testified on the DOL’s proposed Retirement Security Rule, including my organization, the Fiduciary Institute. Eight of those groups opposed the rule.
My team conducted word searches of the testimony to better understand what rule opponents support. We first searched for the word conflict (or conflicts or conflicted), because avoiding or eliminating conflicts of interest is central to fiduciary advice.
Carlo V. di Florio, director of the SEC Office of Compliance, Inspections and Examinations, spoke in 2012 of the “mortal threat” of conflicts of interest.
Our search found 67 mentions. Among the eight groups opposing the rule, conflict was mentioned nine times. In none of these nine instances were conflicts mentioned or discussed as being harmful to retirement investors or to fiduciary advice.
These are the groups whose testimonies we reviewed: SIFMA, American Council of Life Insurers, FSI, NAIFA, Chamber of Commerce, Davis & Harmon, Committee of Annuity Insurers and Insured Retirement Institute.
We then conducted additional searches of words associated with fiduciary advice: eliminate, avoid or mitigate (re: conflicts), prudence, loyalty and care. Except for one mention of “care” by FSI, our searches turned up nothing. We found no language suggesting that conflicts are harmful or that fiduciary advice principles are beneficial. Searches for the Advisers Act of 1940 or SEC v Capital Gains Research Bureau found nothing. Yet, the word fiduciary was mentioned 206 times.
The searches showed virtually no language from groups opposing the rule that reflected an understanding of fiduciary advice. Nor did any comments acknowledge the statements of Assistant Secretary Gomez or Deputy Assistant Secretary Hauser articulating the fiduciary purpose of the proposal.
Instead, the opponents’ testimonies were marked by inaccuracy and obfuscation. SIFMA, the Chamber of Commerce and FSI, for example, said that the proposal is unnecessary because the SEC, NAIC or FINRA “have it covered.” SIFMA said, “Our member firms made substantial changes in 2019 and 2020 to implement Regulation Best Interest.”
But there is no evidence that Reg BI has improved the service provided by those fiduciary opponents. According to research from the North American Securities Administrators Association (NASAA), “…. Reg BI has not yet caused broker-dealers to make substantial changes and ‘firms are still relying heavily on suitability policies.’”
The prize for candor and straight talk among rule opponents goes to Kent Mason of Davis & Harmon, who was there to represent a broker-dealer. His transcript should be required reading.
In pages 177-183, Mason said a lot in few words. I wholeheartedly disagree with Masons’ mischaracterized sentiments and analysis regarding the rule’s validity and legality, the five-part test, and the treatment of compensation. Mason said, for example, the rule “eviscerates” the five-part test (which determines whether someone will be treated as a fiduciary). It does not. He then falsely claimed it makes educational conferences impermissible, because those conferences are typically part of an incentive award to brokers, and those awards are forbidden under the DOL rule. Of course, educational conferences are possible, just without those awards.
He spoke candidly and plainly. “I am not here to suggest discreet changes,” Mason said. “There are no number of discreet changes that would make this proposal workable or valid.”
This candor was virtually nonexistent from other rule opponents. It goes well beyond opposing the rule.
Mason’s testimony expressed utter contempt and disdain for DOL’s effort to apply principles that result in fiduciary conduct. This total rejection of anything truly fiduciary puts the very existence of fiduciary advice at risk.
Fiduciary opponents today do not seek to weaken fiduciary advice as the brokerage industry did 15 years ago. Indeed, those opponents seek to eliminate fiduciary advice from our profession altogether.
Knut A. Rostad, MBA, is the co-founder and president of the Institute for the Fiduciary Standard, a nonprofit formed in 2011 to advance the fiduciary standard through research, education and advocacy.
A message from Advisor Perspectives and VettaFi: Advisors: You're Invited to Exchange! Nothing would be a better start to the new year than if you joined us at Exchange, an in-person conference for members of the financial services community in Miami, Florida on February 11-14th. For a limited time, we're offering you a free Exchange ticket!* Register today with code WINTER24 to claim your pass.
Read more articles by Knut A. Rostad
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
