My Journey toward a Better, Simpler Fiduciary Rule

I have no problem whatsoever with the intent of the DOL fiduciary rule (may it rest in peace). But I was dismayed with the rule’s final form. In fact, I believe that the DOL’s voluminous tome can be distilled to a single sentence.

If you include the best-interest contract exemption (BICE) language, the rule ran to over 2,000 pages, and imposed a whole lot of burdens not only on the brokerage firms who have been leeching on retirement assets for a century or more, but also on advisors who have been behaving as fiduciaries all along.

The exercise gave me a disheartening insight into this big unwieldy organization we call the United States government. The DOL took what is fundamentally a simple concept and turned it into a pile of of bureaucratic legalese that runs 600 pages longer than Tolstoy’s War & Peace. If this is the way every agency and regulator in Washington handles things (and I strongly suspect it is) then it’s no wonder businesses are up in arms about regulatory overkill.

We need to regulate our capitalist system to make sure everybody plays fair. But do we need thousands of pages for every simple item of fairness?

Is there a better way?

To find out, I embarked on a journey. I started with the belief that the intent of the DOL Rule could have been codified, in its entirety, on the back of a napkin. So I wrote my version of the Rule, and then asked my Inside Information readers to weigh in on whether they would support my scaled-down version or modify it.

Here’s what I started with:

Any individual or organization providing financial or investment advice for compensation in regards to an IRA rollover must adhere to the same standards of care that are required of individuals or organizations that provide financial or investment advice to qualified plans under the ERISA rules and guidelines.

This would require advisors to create investment policy statements for clients (something many don’t do now, but which would be an excellent best practice), and otherwise do what most of the best advisors normally do: exercise due diligence in the selection of investment options and periodically report on the whys and wherefores of their selections. New best practices in this area are already emerging.