Jason Roberts at Pension Resources Institute: It's the DOL itself saying 'maybe we got this wrong' as a means of giving cover to delay.

January 20, 2017 — 11:42 PM UTC by Janice Kirkel

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Brooke's Note: I got this story fairly late today. It's a lot to digest and as such I consider it to be perhaps a work in progress. Still, I decided to publish what I know to the degree I understand it with the promise to update as I learn more. I figured you might want to know. Sources disagree semantically about whether the DOL, based on this development, is dead, delayed or in some sort of cryogenic suspended animation if what we're hearing out of Washington is right. What is clear, if this Texas court angle is true, is that the DOL rule has a bigger target on its back than originally believed when it appeared on the Virginia Foxx hit list. See: Who's afraid of Virginia Foxx and friends? Maybe pro-DOL forces should be but no panic yet. Now it looks like there's a contract out to execute the hit.

The DOL rule's life is set to be upended and the Labor Department will deliver the flip.

Perhaps the biggest legislative effort since 1940 to put client interests ahead of Wall Street will be stayed in a Texas court at the hands of what was once deemed to be a less than seminal lawsuit, according to Jason Roberts, CEO of the Pension Resource Institute LLC in Los Angeles.

The mechanism by which the rule, at least as presently constituted, will get brained is a directive from the executive branch under President Donald J. Trump to the Department of Labor. 

The DOL will likely invite a stay under terms favorable to the nine plaintiffs including the Securities Industry and Financial Markets Association (SIFMA), the Financial Services Institute and the U.S. Chamber of Commerce. See: Why SIFMA & Co.'s trip to a friendly North Texas court to upend the DOL rule looks more like its Alamo.

A stay of proceedings is a ruling by the court in civil and criminal procedure halting further legal process in a trial or other legal proceeding. The court can subsequently lift the stay and resume proceedings based on events taking place after the stay is ordered. See: See: Mum on DOL rule, Labor chief appointee Andy Puzder's 'check-the-box' 401(k) plan at CKE Restaurants speaks volumes.

Roberts says it's still unclear where the rule is headed. "You can only delay a regulation that is already effective so long without going through the APA," he says. "The litigation provides cover so to speak from the Administrative Procedures Act requirements and the power of the new DOL to delay it for another six months."

The APA addresses procedural formalities of administrative agency decisions and whether they are "arbitrary, capricious or an abuse of discretion."

In the meantime, the DOL is on an awkward footing.

"It's the DOL itself saying 'maybe we got this wrong,'" says Roberts. Word of the plan to scuttle, or at least delay, the DOL rule by use of the courts came to Roberts by way of a Washington law firm immersed in ERISA law and matters pertaining to the Department of Labor, he says.

A voice mail message was left for Department of Labor asking for comment.

Out of left field

What's shocking about this purported plan is the means by which it will come about and how fiendishly effective the plan it would be, according to Roberts and Rick Meigs, president of 401khelpcenter.com in Portland, Ore.

And, in Roberts' opinion, it underscores that somebody in the Trump administration has it out for the DOL rule.

Meigs and Roberts say they fully expected the rule to be delayed -- but by the traditional means of a rulemaking process.

One jarring detail of the Texas court scenario is that the person tasked with throwing the case is Timothy Hauser, who is acting head of the Employee Benefits Security Administration. Hauser is widely viewed as the architect of the DOL rule. See: The DOL rule is DOA -- and that's just the beginning, says RIA champion Brian Hamburger, law school chum of odds-on chief of staff Reince Priebus

Meigs agrees with Roberts that this legal artifice suggests great animus toward the rule, given, presumably, how many bigger fish there are to fry. The only two Trump surrogates that have previously spoken out on the rule are two billionaires -- Anthony Scaramucci and Carl Icahn. Though Scaramucci expressed distaste, Icahn actually favors it, he says. See: The time is now for the investment industry to shed its shameless culture or pay a steep price.

"Somebody's done their homework and thought this through. This is right out of left field." 

But though the DOL rule may come to an ignominious end in Texas, the victory of the Wall Street lobby may not only be hollow -- but even counterproductive to the interests of Wall Street corporations, both Roberts and Meigs say.

"Be careful what you wish for," says Roberts.

Worse than the rule? 

Roberts explains that what many people never understood is that the DOL rule never put more teeth into existing regulations. It merely extended those rules to a broader set of advisors and brokers. See: How the DOL brought the IRS wolf to the RIA door with its 'rule' -- think IRAs.

But in expanding the definition of investment advice under ERISA, beyond the current five-part test that has defined that term since 1975, the DOL also provided exemptions that hadn't existed under those legacy laws -- most notably BICE, or the best interest contract exemption.

Fiduciaries who dispense advice that triggers variable compensation — for example, an advisor getting paid a commission, or being paid higher fees because of a rollover recommendation — would be engaging in a “prohibited transaction” under ERISA and IRS rules. Penalties would be applied.

BICE allows for variable compensation with impunity, as long as advisors and financial institutions jump through the right hoops. See: A veteran securities lawyer takes contrarian stance that the DOL is still 'suitability' reworded, when boiling its 1,000-page 'rule' down to 16-page 'guide'.

Another reason that opponents of the DOL rule might rue the day they effectively killed it is if Democrats should retake the White House in 2020.

"I would much prefer this rule to anything Elizabeth Warren might throw my way," Roberts says. 

Meigs agrees: "It would be so much worse." See: How Time magazine's "Sheriff" article about Mary Schapiro, Sheila Blair and Elizabeth Warren misses the mark.

No turning back.

But what is likely not to be much worse, ironically, is what happens to consumers, Meigs and Roberts agree. That's because firms, for the most part, have had little choice but to presume the law would go into effect and, for the most part, have already put in preparations to do so. Roberts says that 75% of his clients have complied. Having complied, he adds, they have little incentive to reverse course. They have lowered the overall liability exposure for the corporations and put forth a cleaner value proposition to clients. See: Using DOL as cover, Bank of America cuts the Merrill Lynch bull as it adds a robo, stops paying brokers to stick around and kicks John Thiel .

"Firms are telling me: We can't walk this back," he says.

Roberts adds:  "I’m not convinced it’s dead per se.  I believe it will come back in some form or fashion after the delay and notice and comment period."

Meigs agrees that there is no true walking back to be done.

"It's a done deal. People are educated. The plaintiff lawyers are geared up."

Brooke's endnote: That said, my interview with Roberts at noon PT was interrupted for 45 minutes when a PRI client called. Roberts described the client as a "big TAMP" that was on the verge of rolling out a whole new set of contracts in new DOL rule language. Those contracts were to be reworded in light of knowing what DOL had in store for the Texas case.



Share your thoughts and opinions with the author or other readers.

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Stephen Winks said:

January 22, 2017 — 5:39 PM UTC

In many respects Trump is supportive of the "forgotten" retail investor who is being taken advantage of with 40% 0f their earnings on retirement savings being lost to brokerage fees, commissions and administrative cost. Let's see how the brokerage/insurance lobby (swamp) fares. I suspect Elizabeth ("you didn't build that") Warren in a divided government will put up a fight. This is a way Democrats can work with Trump without violating Trump's principles. There is not much to agree about Warren, but Trump is an unconventional President who can forge an agreement. SCW
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Rhymes said:

January 23, 2017 — 2:51 PM UTC

You’re missing the point, BICE doesn't really exist. It is built to be impossible to use in most cases by having huge paperwork and violates rules of other regulatory bodies. And don't give me it just needs to be tweaked, it won't be because it was ‘intentional’ to be impossible. It was intended to prevent taking rollovers from a 401(k) and will continue to do so. The rule was strictly designed to get rid of brokers. But, like it or not they are the only ones talking to middle class people and small businesses. Are you writing startup plans, or is taking small rollovers unprofitable business for you? If not who will help these people? Forget $50 million plans, what about $50,000 plan. That's where everyone in America works. Why is the Department of Labor regulating individual retirement accounts? Why are we bringing in a new agency outside its scope to regulate the products that have multiple agencies already regulating them? Can't we just have the SEC say level commissions on IRA products or ban annuities? Why this whole monster BS thing? If you haven’t guessed yet the answer is the prior administration was talking a path to follow other countries lead and get rid if an industry (brokers). While I am an RIA, so I don't care about the fiduciary part or have much of a 'dog in this hunt', I have been around for a while and the people who really need help would not receive it because of this rule.
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TERESA VOLLENWEIDER said:

February 9, 2017 — 9:54 PM UTC

Rhymes, it's not help, i.e., it's not advice, if it's a sales pitch disguised as advice. No one should pay for a sales pitch! Who in their right mind would pay for a sales pitch, if they understood that that is what it was? Nobody would. Nobody!
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Lisa Fitzgerald said:

February 11, 2017 — 9:26 PM UTC

DOL is going to lose? WRONG!!

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