“I’ve been in a room with Phyllis Borzi where she said 90 percent of all rollovers were imprudent,” Wagner Law’s Tom Clark said Monday to advisors at a study group in rural Wisconsin hosted by consulting and advisory services firm Sheridan Road. “I have no idea where she got such a figure, but this is what she believes.”
The Department of Labor’s fiduciary rule was, of course, top-of-mind for the lunchtime panel discussion moderated by Clark.
Not yet three weeks past the June 9 initial implementation/non-implementation date set by the DOL, with rule’s full implementation set for January 2018, and advisors and industry watchers are wondering what’s changed in the way 401k firms and advisors operate.
“How many people here in the room significantly changed the way you do business between June 8 and June 9?” Clark asked.
When no attendees raised their hands, he scaled back and asked how many in the room somewhat changed the way in which they do business. The scattering of hands was explained by Sheridan Road managing partner Jim O’Shaughnessy as changes that “had been in the works for a while.”
Unsurprisingly, where the industry currently finds itself is nowhere near where it began when Borzi, assistant secretary for Employee Benefits Security with the DOL, began pushing for the rule’s development.
“It was relatively simple,” argued Phil Troyer, compliance officer with benefits, insurance, and financial services firm Bukaty Companies, located in Leawood, Kansas. “The intent was to separate conflicting advice from nonconflicting advice, but that is now very confused. What Phyllis wanted is not what we now have.”
Kim Shaw Elliot with IFP agreed, noting the fiduciary rule requires three things, but is incredibly vague on how the three are executed:
- Advisors of retirement accounts act in the clients’ best interest
- They charge ‘reasonable’ compensation, and
- They don’t misrepresent what they do and the services they provide.
The Trump Administration and DOL’s somewhat lax attitude under recently appointed labor secretary Alexander Acosta are only adding to the confusion.
“We went from very prescriptive and stringent interpretations and warnings about the rule to now essentially ‘giving patients the keys to the pharmacy to choose whatever medicine they want,’” Clark added.
Ultimately, it’s making the advisor’s job more difficult when providing quality advice.
“There little separation in that those who traditionally were not fiduciaries can become fiduciaries by adhering to the three items mentioned above, bit are they truly fiduciaries or just checking boxes,” Troyer said. “What the DOL under Borzi thought is that advisors are all out to screw their clients. But in 2008, would participants have paid an additional 1 percent for advice—even if that advice was conflicted—if it saved them from losing 40 percent? The answer is probably yes. This is what the DOL doesn’t understand, and continues to put barriers in front of us when giving advice.”
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.
