Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
Labor Department building in Washington

Regulation and Compliance > Federal Regulation > DOL

New DOL Fiduciary Rule Will Face Lawsuit, Former Treasury Official Says

By Melanie Waddell

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Plaintiffs will likely argue that the rule is overly stringent and advisors will drop out of the market.
  • But the rule is less broad than the 2016 rule, Ben Harris of Brookings says.
  • A big change with the new rule is around one-time advice, he explains.

The Labor Department’s new fiduciary rule will face a lawsuit, according to Ben Harris, director of the Retirement Security Project at Brookings in Washington.

“I think it’s virtually sure that you’ll see a lawsuit filed against it,” Harris, who previously served as assistant secretary for economic policy and chief economist at the Treasury, said during a recent Brookings podcast.

The suit, Harris said, will likely be based on the industry’s claim that the rule, the Retirement Security Rule, is “overly stringent, and what this means is that advisors will drop out of the market,” a similar claim that industry was making in 2016, when the first DOL fiduciary rule was floated. The rule was thrown out in court in 2018.

Harris stated that he didn’t find the industry’s argument “terribly compelling at the time, in part because, as a saver, if you spend your whole life accumulating savings and you’re going to someone for advice, and you’re paying them for that advice, you’re expecting that the advice they give you is in your own best interest. And this is a really important decision. I mean, it’s literally a lifetime of saving that’s on the line here.”

At the time, Harris continued, “I felt like the academic evidence and the projections suggesting that people would drop out of the market, that advisors would drop out of the market owing to the fiduciary rule in 2016 probably wasn’t all that well-founded on the evidence.”

It’s true, however, “that some commissions might go down or they’d have to be paid differently, but I didn’t feel like there would be this overwhelming dearth of investment advice in the market,” Harris said.

Similar arguments will be raised in potential lawsuits, “which is basically focused on exits from retirement advisors from the market, potentially leaving low- and middle-income savers with no advice,” Harris continued. “Now, if that happens, I think it’s a legitimate complaint. I just don’t think [it] will happen.”

The new fiduciary rule is “less broad” than the 2016 rule, Harris relayed.

The 2016 rule “effectively applied to any time anyone was providing retirement advice to savers. It was incredibly broad and it was ultimately any conversation that you had with an advisor would be covered,” Harris continued. The new rule “is much more narrowly targeted to certain products and targeted towards that one-off type of advice you might receive around the rollover instance. So it’s more narrow.”

A ‘Big Change’

What the new rule “ultimately is doing from a very high level is updating the laws governing retirement investment advice to be more consistent with the landscape today, to be more consistent with a retirement landscape where people have to make their own individual decisions and are turning to advisors for advice,” Harris stated.

“This is something that people didn’t have to do 50 years ago when [the Employee Retirement Income Security Act] ERISA was passed,” he explained.

Today, “401(k)-like accounts are managed by the worker, or the saver, or the individual, which requires a fair amount of knowledge in terms of how to invest and financial decisions that need to be made. And so, when that type of onus is put on the saver, you know, a lot of times people are not experts in this field, so they turn to experts,” Harris said.

A “big” change with the new rule, Harris said, “is around one-time advice.”

Prior to the new DOL fiduciary rule, “a person might go to an advisor at the period of a rollover,” Harris explained. “So, you have saved for your whole life in a 401(k), maybe you’re at one job, maybe many. But let’s say that you’re at the end of your career and you’re making a decision about what to do with your accumulated retirement savings. And you go to a retirement advisor and you’re saying, ‘[L]ook, I want to put this in some type of product.’”

Under the current regulations, “if you’re just going in for one-time advice, that might not be covered under this umbrella rule that demands you get a certain level of advice,” Harris continued.

“And what this [rule] does is it says that if the advisor provides regular advice, not just to you, but as part of their course of business, then they might be subject to a fiduciary standard. So, what it ultimately does is protect people who are looking for that, you know, one-time piece of advice from an advisor around rollovers,” he said.

Melanie Waddell

@Think_MelanieW

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.