Monday, June 6, 2016

Let’s Hope the Regulation is Worth It

I’m sure that “the regulation” needs little, if any, further definition. Just as “the drive” in Super Bowl annals will always be associated with John Elway and the Denver Broncos, “the regulation” is a good candidate to forever be associated with the Department of Labor and its fiduciary definition package of final regulations and exemptions.  This guidance has been that big.

Big, of course, can mean a couple of things.  In terms of length in its Federal Register-published version – or any version, for that matter – the guidance is certainly big.  It fills more printed pages than any other in my 31 years in the retirement industry.  In terms of its potential impact on the way advisors do business with retirement investors, it is certainly big.  While notably improved over the proposed regulations, the final regulations are likely to be just as demanding in terms of the analysis required to comprehend what it all means, and configure operations and administration in order to comply. 

These DOL regulations contain a Regulatory Impact Analysis that attempts to quantify in dollars-and-cents terms the effort – translated into cost – that will be required to comply.  Notably, the costs being accounted for – whether or not they are reasonably accurate – measure chiefly those costs incurred by individuals and organizations involved in the advising relationship.  The brokerage, the mutual fund company, insurance company, street corner bank or credit union, and their employees or affiliates, are theoretically taken into account in this assessment of effort and cost.

One expense we can find no evidence of being taken into account by DOL is the effort being expended by organizations that consult with, and counsel, financial organizations and advisors who must comply with the new rules.  Benefits consulting firms, including law firms whose practice specializes in retirement benefits, are included in this group. 

DOL might argue that their final regulations and exemptions are a boon to such businesses, and a revenue stream for the analysis and guidance that must be given to their clients.  If only that were true.  Certainly there are firms that work strictly on a billable-hours basis, and for them the changes may trickle down to a better bottom line.  But that is far from universally true.   My firm is a typical for-instance.  We serve qualified retirement plan recordkeeping clients, IRA, HSA and ESA custodians, trustees and issuers, and have many partners and clients that use a wide variety of our services and products that are tied to tax-favored savings.

Almost without exception, our service agreements include interpreting and sharing findings related to our clients’ compliance responsibilities.  Whether we inform them in web site postings, in articles written for industry media, create special webinars, or assist in strategizing changes to product offerings, we are “at their service.”  We don’t shrink from such responsibilities; such relationships are a privilege.  But such relationships do not yield windfalls, as some might believe.

Even a very superficial tallying of the “man hours” that have gone into analyzing this fiduciary guidance reveals that it has been a huge expenditure of time and talent for our staff to understand and share their meaning and impact.  We take pride in our ability to dissect and interpret, and to be an important compliance resource to our clients.  But when all is said and done, the cost of adapting to these regulations will be far greater than four pages of the April 8, 2016, Federal Register suggest.  We truly hope the benefits delivered to retirement investors will prove to be worth it.