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Could the Department of Labor’s Fiduciary Duty Standard be the Next to Go?

Posted in Financial Industry Trends, Securities Legislation

The Department of Labor has a rule pending that would impose a fiduciary duty standard for investment advice pertaining to retirement plans.  Like the resistance faced by the SEC in its attempt to create a uniform fiduciary duty for retail investment advice, the DOL has faced similar resistance, with calls for a cost-benefit analysis before imposition of such a standard.

Opponents to the rule say that the cost will not outweigh the benefits of this heightened standard of care.  Skeptics of the pending rule suggest that it will drive brokers out of the IRA market so that they can avoid being confronted by a fiduciary duty standard.  Some critics believe that the DOL is targeting a non-existent problem.  Others claim that the rule would deprive small investors from obtaining IRA advice as brokers leave the business. Advocates of the fiduciary duty assert that such a rule will require brokers to provide unbiased advice.

Wherever the DOL lands on this issue, I believe that it should, like the SEC, conduct a cost-benefit analysis to really determine if (1) such a rule is needed and (2) do the benefits of the rule outweigh the costs incurred to impose such a rule.  Only after the completion of this analysis could we objectively say it is a good thing and will be deployed in a cost effective manner.