The linchpin in the whole fiduciary rule mess isn’t regulation, but rather deregulation, at least according to Eugene Scalia, son of the late Supreme Court justice.
A former solicitor for the Department of Labor under George W. Bush, Scalia took to the pages of The Wall Street Journal on Thursday to decry what he sees as the department’s overreach, referring the fiduciary rule as a regulatory Godzilla.
“To start, although the rule will transform the market for IRAs, the Labor Department has no authority to regulate IRAs,” Scalia notes before querying, “How, you might ask, is it regulating something that by law it may not?”
It had to do with Labor’s deregulatory authority with respect to IRAs, and the fact that it can lift restrictions that otherwise apply.
“So the Labor Department first adopted an overbroad definition of who is a fiduciary, essentially capturing all insurance agents and brokers who deal with IRAs. They automatically became subject to the restrictions Congress places on fiduciaries, effectively barring the receipt of commissions.”
The department then used its deregulatory authority to make insurance agents and brokers what Scalia calls “an offer they couldn’t refuse: They could get commissions after all, if they complied with a raft of new requirements designed for IRAs.”
In this way, he adds, the Labor Department made itself—not the Securities and Exchange Commission and not state insurance agencies—the principal regulator of financial professionals who service IRAs.
A key issue in the fiduciary litigation is the Constitution’s restriction on federal agencies’ ability to create new grounds for people to sue,” he notes. “The Supreme Court held in 2001 that only Congress may create these private rights of action.
He then quotes his father, noting the elder Antonin once opined that “Agencies may play the sorcerer’s apprentice, but not the sorcerer himself.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
