Last month I had dinner with the author of that Rule, the Assistant Secretary of Labor, Phyllis Borzi. She was here in Kansas City to speak at the Employee Benefits Institute. I did not find her to be vindictive or combative towards the financial industry, and I honestly don’t believe that she’s out to destroy the insurance industry.
In a word I’d say her disposition was one of relief - relief to have finally published the Fiduciary Rule that she had labored so hard to produce. On the one side she had critics who wanted to put the “insurance vultures” out of business. On the other side she had the broker dealer community lobbying hard to argue that there was no conflict of interest in the business of cannibalizing 401(k) plans for IRA rollovers. She listened to both sides and struck a path down the middle that seems to have left no one completely pleased.
But she seemed pleased … and relieved. Was that relief to finally have the Fiduciary Rule published or relief that her impending retirement is so close at hand? Yes.
The point is that, in my humble opinion, I don’t think her intentions were malicious. I don’t think she intends to put anyone out of business. I think she hopes that those who specialize in advising plans and those who specialize in advising plan participants each do so with greater skill and efficiency and expertise, as a specialty, as well as greater integrity and with greater expectations, held to a fiduciary standard. Both roles are needed and they are not mutually exclusive, but neither can they exist within the same practice without there existing a conflict of interest.
I think her intentions were to create a dialogue, and to that measure her efforts were a smashing success.
Even if this lawsuit (filed last Wednesday) reverses some of those provisions, retirement plan sponsors now know that they would be wise to ask whether their advisor is working in their best interest; whether they are working for the plan or for their commission. (And wise to not naively assume that they are working in their best interest.)
And plan participants would be wise to question the intentions of anyone encouraging them to take a rollover out of their retirement plan, and if that rollover benefits the person offering that recommendation identify the conflict of interest.
I don’t believe her intentions are to deliver the death notice to the 401(k), but rather to protect consumers who rely so heavily upon the 401(k) and are far too often the victim of predatory practices from a few within the financial industry.
I'm among those who wish the Regulations had gone even farther, but I'll not criticize Secretary Borzi for at least getting done what the SEC could not get done. Kudos to her for starting an important dialogue and beginning some much needed reform.
There was already a "dialogue" of sorts, but until the Fiduciary Rule no one was taking the dialogue seriously.
And until the Fiduciary Rule most of the public was not engaged in the dialogue.
And even if the lawsuit filed June 1st rolls back some of the provisions of the Fiduciary Rule, the consumer knows to question whether their plan advisor is really acting in their best interest. That part of the dialogue wasn't always happening, and now that Secretary Borzi has the public involved they can't un-hear what they've now heard.
In other words, even if the lawsuit is successful it might be about as effective as telling a jury to disregard testimony they've heard. How can it not impression and enlighten the sponsors and participants of retirement plans about the inherent conflicts of interest in the practices of some financial advisors?
