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Was It Right to Kill the DOL Fiduciary Rule? Bloink & Byrnes Go Thumb to Thumb

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Robert Bloink and William H. Byrnes Robert Bloink and William H. Byrnes

The Fifth Circuit officially vacated the Department of Labor (DOL) fiduciary rule as of June, 2018, although the opinion that spelled the rule’s demise was issued in March. As most know, the DOL fiduciary rule imposed a mandate upon most advisors that would have required them to act in the best interests of their clients, including  disclosing any conflicts of interests that any given transaction may have created.

(Related: DOL Fiduciary Redux Is a ‘Sleeping Giant’: Groom’s Saxon)

The rule also required many advisors to disclose their fiduciary status to clients, and to accept only reasonable compensation for advisory services relating to sales of certain financial products, recommendations regarding rollover transactions and retirement account investment decisions. At the firm level, the rule required financial firms to implement written policies and procedures designed to mitigate the impact of conflicts of interests.

We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions on the rise and fall of the DOL fiduciary rule.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Byrnes: YES
Bloink: NO

Their Reasons:

Byrnes: The Fifth Circuit opinion echoed what everyone in the financial services industry has been saying about the rule since it was introduced. It was an incredible overreach by the DOL, and subjected an entirely new class of advisors to a heightened fiduciary standard with respect to clients that these advisors may have had minimal interaction with. Selling a single annuity product to a client should not mean that the advisor is now a fiduciary with respect to that client, which I believe was one of the court’s primary problems with the rule.

Bloink: The rule was broadly applicable, and that was its intent.  Prior to the introduction of this rule, a myriad of different standards of care could have applied to an advisor based on often subjective criteria.  Because of this, advisors and clients often were unclear as to the required duties of the advisor, meaning that a client was extremely unlikely to challenge an arrangement that may have been conflicted.  Even more important, the client probably wasn’t even aware that conflicts of interest on the advisor side were an issue.  The rule was designed to protect these clients, and maybe it needed fine-tuning, but vacating the rule entirely was not the ideal solution.


Byrnes: Even if the rule was designed to protect clients, it wasn’t going to do the job.  What the rule was going to do was increase the cost of providing retirement-related advice for middle class clients who may have needed that advice the most. Instead of gaining access to “fiduciary”-level advice, many clients may have found themselves with no access to advice at all.

Bloink: This is a trillion-dollar industry we’re talking about.  There’s plenty of room for advisory arrangements at all price points, and I don’t think we would have seen a reduced access to advisory services for the middle class.  Further, the publicity surrounding the rule itself has generated a huge awareness of the fiduciary issue, meaning that the “best interest” standard is on clients’ radars now.


Byrnes: No one is saying that acting in a client’s best interests is a bad thing, but there is no reason to hold such a wide range of advisors to this standard, especially those engaging in one-off sales transactions with a client who is requesting a certain financial product, such as an indexed annuity.

Bloink:  The point is that the fiduciary standard isn’t going away. The SEC rule is already in the works, and the old five-part test for determining fiduciary status has gained new attention.  What we have now is another situation where advisors aren’t really certain which standard they will be expected to adhere to with respect to any given client, and no one knows what new rule the SEC is finally going to pass or whether the DOL will take another crack at a new fiduciary rule on their end.


Byrnes: If a new rule does emerge, I think that we can expect it to be much more narrowly tailored to apply only to the types of advice arrangements that truly call for increased regulatory scrutiny. That’s exactly what the court was saying when they vacated the DOL rule—we need something more narrow, a rule that only applies to advice structures where an ongoing relationship exists between advisor and client in certain specified types of circumstances.

Bloink: Fair, but in my view that says that it wasn’t really necessary to vacate a rule that firms and advisors had already spent significant amounts of time and money coming into compliance with.  Simple amendments could have fixed any issues with the DOL rule. Now, it’s entirely possible that firms will have to start at square one in order to develop new procedures for complying with a new set of rules. Like I said, the fiduciary standard is not going away, and firms need to watch out for what comes next.

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