Things aren't looking so hot for the big fiduciary redefinition push of 2015 ... Or maybe it's actually on track, despite all the public protestations.

This year the President of the United States himself threw his weight behind the Department of Labor's (DoL's) efforts to expand the ERISA fiduciary standard to cover more retirement plan advisors and FAs working with IRAs. The proposal's been out a month, and both Democrats and Republicans are fighting the proposal, and fundsters are worrying about what it all might mean for them. Many of those complaining about the proposal accused the DoL of rushing the reg through.

On Friday the DoL revealed a 15-day extension of the initial comment period on the reg, which pushes things further into the summer and increases the total comment period (including the initial comment period, now 90 days in length, and the comment period that will follow the subsequent public hearing on the matter) to upwards of 140 days. With Congress shouting and the DoL retreating (at least on the comment period length), one might think that the odds of the reg ever getting through are fading.

Or maybe not. The DoL first tried this back in 2010, and that proposal stalled indefinitely amidst Congressional opposition. The 2015 proposal has a key upgrade: the "best-interest contract exemption", which would be required for those who give advice to retirement plans or IRAs but want to be able to use non-level compensation (i.e. receive commissions): all they have to do is give their clients a promise, in writing, that they will put their best interests first.

Fundsters and B-Ds worry about educational and transactional services being sucked into the advice definition, making for strange and unhappy new fiduciaries, and they're crying "foul" (or least crying "let's not be too hasty"). And B-Ds probably don't relish the compliance joys of getting all their reps to hand out, and getting all their reps' clients to sign or acknowledge receipt of (it's a contract, and contracts need two signing parties), those best-interest contracts.

But maybe the best-interest contract exemption is the secret weapon for President Obama, his council of economic advisors, and his DoL (led by Tom Perez, with DoL Employee Benefit Security Administration (EBSA) chief Phyllis Borzi making the push). If the DoL pushes the reg through despite Congressional opposition, and Congress tries to reverse the reg through legislation, Obama and his team can throw the "So you think advisors shouldn't have their clients' best interests at heart?" line at their foes. And who would want to fight such an quintessentially American-sounding proposition as service providers doing what's best for their clients.

Imagine scenarios like this:

-A fundster, B-D insider, or FA of some type, or a lobbyist representing the industry, speaks out against the proposed reg, complaining about the compliance cost or the business model disruption. Someone in the DoL or administration responds, "So you're saying that a little piece of paper and putting clients' interest first is too much of a burden on the industry?"

-A politician speaks out against the proposed reg, complaining about regulatory overreach. The response: "So you're saying that the financial services industry shouldn't the best interests of ordinary Americans first? Don't Americans deserve a financial advisor they can trust?"

In the end, perhaps the reg is pushing in the same direction that the industry's already heading, further away from hard-sell, commission-based distribution of investments and more towards level, fee-based model -- Merrill One, anyone? So maybe DoL success here just means a stronger shove but on the same path. 

Edited by: Neil Anderson, Managing Editor


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