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How Wall Street emasculated the DOL rule with an old-fashioned end game: 'Somebody made a deal' -- and why tort lawyers are licking their chops

End-game style politics exposed fiduciaries' lack of playoff experience, but RIAs can console themselves because DOL exposed shady dealings on 'the dark side'

Author Lisa Shidler April 7, 2016 at 3:10 PM
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Knut Rostad: Phyllis Borzi moved heaven and earth with the tools she had and I think we let her down. I think we were too polite.

RIA Compliance

Robb Smith

Robb Smith

April 7, 2016 — 9:02 PM

To John Anderson’s point, the courts are the final (and best) arbiter, not the DOL. In last few years, we have seen a maturation in the courts to finally understand workplace fiduciary duties and what are reasonable and necessary services and what are potentially excessive fees. The reason we are seeing a “sea-change” has less to do with a “new” fiduciary standard and much more to do with the threat of a law suit by pro-active plaintiff litigators while at the same time the courts have, rightly so, become more sympathetic to plaintiff grievances.

Rick Meigs

Rick Meigs

April 8, 2016 — 6:44 PM

The tone of this piece and Harvey’s view specifically have little basis in reality. Streamlining and correcting unworkable procedures in the rules in no way changed the outcome. The new rules are game changers — especially with IRA investors — because they fundamentally require brokers, independent BD reps, and other advisors to act as a fiduciary. Those that don’t put the best interests of their clients first will find themselves in court.

Brooke Southall

Brooke Southall

April 8, 2016 — 7:14 PM


I appreciate your optimism and I hope you’re right that our take, based on strongly held views of some of our sources, is wrong. I consider you one of the real experts in this business and that your views are ignored with peril — particularly, as you point out, with regard to real changes coming for IRAs. Lisa is working on an article on that specific point.

Still, I respectfully stand by the slant of this article developed largely from the stance of its key source, Lou Harvey.

My question to you is this: How do you, as you write here, “fundamentally require brokers, independent BD reps, and other advisors to act as a fiduciary”?

Until proven otherwise in the court of law, it seems a leap to presume that courts are going to be able to parse the differences between suitability and fiduciary.

When an an expert and pragmatist like Lou Harvey expresses concern over that parsing, and explains in some detail why it is a high hurdle, it is very hard to dismiss, if history is any guide. Harvey is saying the legal burden has gone from a contractual issue to having, essentially, re-litigate the whole idea of what a fiduciary is!

I’m concerned that “workable,” as you reference, is another way of giving providers the needed cover to do business as usual.



P.S. Us journalists we are so worn out by declarations of 'game changer’ that when we hear that two-word phrase and its self-congratulatory bravado, we reflexively presume the opposite.

Rick Meigs

Rick Meigs

April 8, 2016 — 11:47 PM

Thanks for the thoughtful reply Brooke.

I’m not sure it will be difficult to “parse the differences between suitability and fiduciary.” There are plenty of plaintiff litigators who will certainly believe they can tell the difference based on specific facts and circumstances.

It will be interesting to see how this unfolds over the next 18 months or so.

Stephen Winks

Stephen Winks

April 9, 2016 — 3:53 PM

The only way to simplify fiduciary duty is to deal with it in its entirety so it is authenticated (back to statute), easy to execute and manage. This will not be achieved through litigation but through innovation. Fidelity and Vanguard will build trillion dollar robo advisory businesses around fiduciary duty ushering in the era of big data and the codification of fiduciary duty—greatly simplifying the business. This makes individualized advice safe scalable, easy to execute and manage. Lou Harvey wisely points out the political power of wall street as a source of political campaign contributions. Yet Rick Meigs is also correct in appreciating the power of free market innovation which is simply made by articulating how the deleted provisions of the final DOL ruling work in the client’s best interest.. It doesn’t take much to show the consumer that 40% of the earnings on retirement savings are lost to brokerage fees, commissions and administrative cost. Illustrating this over ten, twenty and thirty year periods is profound. The free market solution is illustrating violations of fiduciary duty. Violations may be legal but they are not in the investors best interest. There should be no difference between the two (legality and practical consequences). Congress does not have the political will, broker/dealers do not have the interest, so it is left to advisors to win the argument in the free market. As Lou Harvey points out, it would be nice if consumers could actually rely on brokers fulfilling their fiduciary duties as required by statute but not mandatory for want of political courage. It does seem like Wall Street has rigged the industry in way which do not serve the best interest of the investing public.

John Anderson

John Anderson

April 13, 2016 — 8:11 PM

Am I missing something? How is an advisor, not associated with a plan, supposed to provide fiduciary level advice to a potential rollover client when that client and advisor have no true idea of the cost of staying in the plan? I have seen 404a5 and 408b2 notices that obfuscate facts and provide plenty of misdirection. Even the most seasoned 401k specialists can struggle with some of these notices thanks to the lawyers. How will the average advisor defend themselves when they say they are doing what’s best for the client when they have no way of knowing?

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