You read articles about the Department of Labor’s (DOL’s) new fiduciary rule and experts will tell you that it’s the greatest thing since sliced bread, the worst thing since Caddyshack II, or somewhere in between. I learned a long time ago that you can’t please everybody.
If you come from the broker side of things, it’s Armageddon. If you’re on the registered investment advisor side of things, the DOL sold old out by watering down the requirements laid out in the proposed rule.
What you really have to realize about the DOL is how the role of politics played into the implementation of the rule, it was one of the overriding factors in its formulation, change, and implementation.
The DOL under Phyllis Borzi’s leadership under the Employee Benefits Security Administration (EBSA) staked a lot of political capital on changing the fiduciary rule. 6 years of trying to formulate some type of rule that would get a broad range of support is the reason that the current DOL administration had to come up with a new rule. Any politician or administration official is concerned about legacy and Borzi knows how much of a failure she’d look like if there were no new rule because that was something she was talking about for years.
As far as the changes from the proposed rule, a change was going to be made. The proposed rule was always going to be more stringent than the final rule because it’s the game of politics Noting the opposition from Wall Street and watering down the standards of the proposed rule is a way of throwing a bone to Wall Street. It was the DOL’s way of trying to say that they listened and made changes, but all along they knew that changes were going to be made to get a final rule in.
Further showing that’s it’s all a game of politics, the DOL won’t make the rule effective until January 1, 2018. That means a new administration in the White House will see that the rule gets implemented or they may delay it or they may kill it. It will depend who is in the White House, who is in charge of the DOL, and who will be in charge of EBSA in 2018. So the current DOL administration looks good on paper for the new rule, but by delaying its implementation for 18 months, they are kicking the can for the next administration who will get the blame if the rule doesn’t get implemented because it’s all about politics.