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.
