If there's one thing that both supporters and critics of the Labor Department's proposed fiduciary rule share in common, it's a belief that the rule would have a profound impact on retirement advice in America.
"When you put this in the context of rule changes that have occurred since the financial crisis, this would rank at the top," notes James Allen, CEO of Hilliard Lyons, a wealth management firm with more than 400 advisors.
After four days of public hearings, in which dozens of participants weighed in, the Labor Department is one step closer to implementing a new fiduciary standard, the scope of which heartens supporters and troubles critics.
The wide range of participants at the hearings was further testament to the breadth of its potential impact: insurers and asset managers; attorneys and compliance officers; investor advocates and CEOs. There was even a fraud inspector present.
At times the proceedings seemed like an opportunity to rehash old arguments some of which dated back to 2010 when the DOL last attempted to craft a new fiduciary standard for those providing retirement advice.
Though the sessions often sounded like round-the-clock programming on C-SPAN, other times they were closer to Rashomon, a classic Japanese film in which witnesses give wildly different accounts of a murder.
"It is hard enough to save for retirement. Conflicted investment advice should not be one of the barriers millions of Americans face as they work to save for their retirement," David Certner, legislative policy counsel for AARP, said on the first day of the hearings.
Critics countered with an equally dire scenario of skyrocketing compliance costs, confused investors and firms either unable to serve the less wealthy or left with no choice but to force the mass affluent into more expensive fee-based accounts.
"Smaller clients will be left with the choice of paying too much or not getting any advice at all," Scott Stoltz, senior vice president of private client group products and solutions at Raymond James.
Not just a show
The DOL's supporters and opponents have bee sparring over the proposal since the Obama administration made the rule a priority earlier this year.
Coming off these hearings, momentum appears to be with proponents of the new standard as participants on both sides anticipate the Labor Department moving forward with the new rule. But many expect modifications in response to suggestions and criticism the department received during the hearings and the recent comment period (a second 15-day comment period opens soon).
"I am guardedly optimistic that we will get a re-proposal," says Allen of Hilliard Lyons.
Supporters also anticipate that the Labor Department will amend aspects of the rule now that the hearings have concluded.
"I don't think it was just for show," says Sheryl Garrett, president of the Garrett Planning Network.
"The DOL has had numerous conversations with the various groups affected by this rule-making. They've asked for the suggested changes or tweaks. I believe that they are taking all of this into account," Garrett says.
Some critics as well as advocates would welcome clarifications to aspects of the rule.
For example, the Plan Sponsor Council of America, a trade association supporting employer-sponsored retirement plans, asked the Labor Department to alter its proposal so that investment education materials could identify investment alternatives available under a plan without that being deemed investment advice.
Stephen McCaffrey, chairman of the Board at PSCA, told Labor Department officials that "the focus should be on the factually comparative nature of the information and whether it is being provided in a manner that does not rise to the level of a recommendation."
The second comment period will open once the Labor Department makes a transcript of the hearings available.
In the meantime, firms may be preparing for new compliance costs. Allen says Hilliard Lyons will be ready. "We are a small firm and nimble enough that we can make adjustments as we need to," he says.
Stifel Financial CEO Ron Ron Kruszewski predicted a perverse outcome if the rule goes into effect; firms like his would be forced to move clients with small brokerage accounts into fee-based accounts because of "prohibitively higher" costs. This would result in higher fees for those clients and yet more revenue for his firm.
"Simply, if we charged our brokerage accounts the same fee as our fee accounts, then our revenues would increase by $150 million annually," Kruszewski said on the final day of the hearings, adding that this was not in the best interest of his firm's clients.
Regardless of whether this rule or an amended version goes into effect, some advocates like Garrett see it as just the first phase of a longer evolution.
"This will probably be a stepping stone in moving towards a fiduciary culture, which I think is a great thing for our society and those who are seeking advice," Garrett says.
But even here, visions of the future for this rule differ.
"The DOL's procedures will likely be challenged in court," says Don Trone, CEO of 3ethos, a company that focuses on regulatory and compliance issues. "By holding the hearings and having contentious and opposing witnesses, they'll be able to make an argument that the industry was provided appropriate opportunities to express their input."
Trone suggests DOL senior officials should have shadowed retirement advisors to see how the industry really works. But at this point he thinks "the DOL is going to proceed with their proposal, perhaps with some minor changes and have it in place before the elections."
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