On June 1, 2016 the U.S. Chamber of Commerce, Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute and a number of other organizations filed suit against the Department of Labor (DoL) to stop the implementation of the new fiduciary rules.
Why you should be appalled
Remember that the major thrust of the DoL’s new regulations are to require brokerage firms to provide investment recommendations to their retirement clients (You!) that are in your best interest (not theirs). Right now, no such requirement exists for brokerage firms. That the brokerage community does not accept this new fiduciary standard with open arms should trouble you, especially if your 401k plan investment adviser works for one of these firms.
The current fiduciary rules that brokerage firms follow mean that your interests may be third in line (behind the adviser and his/her firm) when your adviser is considering an investment recommendation.
Full disclosure here. My firm is a Registered Investment Advisory (RIA) firm and is required to provide investment advice that puts my client’s interest first. Yes, there are two sets of rules. One that makes sense for you as a client, and one that does not.
Why object to the new fiduciary rules
Brokerage firms do not like the new fiduciary rules because they feel they will incur additional costs in order to comply and because they feel these new rules will harm their business models. In addition, they say that they will not be able to continue to serve smaller investors if the new rules go into effect. Let’s take these objections one at a time. First, RIAs have always provided advice in a fiduciary environment that puts their client’s interests first and at prices that, more often than not, are less costly than their brokerage firm competitors.
Second, the notion that brokerage firm business models will be harmed is silly. Changed, yes, to be more favorable to their clients. But harmed? It would be difficult to conceive that this would occur since RIAs have found this sort of business model to be perfectly viable.
Finally, those smaller investors with whom the brokerage community says it will no longer be able to serve will find a welcoming home with the many RIAs who know how to put their client’s interests first.
What is likely to happen
A number of experts have characterized this lawsuit as weak. DoL Secretary Thomas Perez has always expected to encounter legal efforts to block implementation and has consistently said that he intends to fight them vigorously. I believe the DoL will win.
In addition, you have probably heard that Congress is sending a bill to President Obama to block the implementation of the DoL’s new fiduciary rules. President Obama has said many times he will veto it.
These new fiduciary rules will go into effect. As an employer who sponsors a retirement plan, you should welcome that conclusion and be appalled at the opposition of the brokerage community to put your interests first.
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or email@example.com.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or firstname.lastname@example.org or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.