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New Labor Department Rule Compromises Went Too Far

When the Labor Department published the new rule last week that requires advisers who give advice to retirement plan participants to be fiduciaries, it was with good intent. Unfortunately, as the saying goes “there’s many a slip twixt cup and lip.” In other words, the intent was not carried through in the regulation details. For example, under the new rules, an adviser can keep selling proprietary products and expensive products and still call themselves a fiduciary. All the adviser has to do is operate under the “best interest contract exemption” (BICE). In essence, this means that the adviser can invoke this exemption from the normal fiduciary standards in the law and still be a fiduciary. And there are other loopholes and exemptions that the new guidelines allow.

As I continue to read about the details of the new rules — and the rules are over 500 pages long so this will take some time — I’m struck by a couple of ripples that this law change has caused:

  1. The investor will need to be sure to tell the adviser what is in their best interest and not allow an adviser to tell them what it is.
  2. This assumes the investor knows what is in their best interest. What combination of cost, features and benefits does the investor desire?

This second question is not easy to answer. As humans, we are walking contradictions. We all want to eat what we want and be thin. We want to buy what we want and still save enough for retirement. We want to pay for college for our kids and still retire early. We want a low risk investment that has high returns. You get my point.

There will be many words written and spoken about the new Labor Department rule over the weeks and months and years. However, it comes down to this for you as an individual investor: what is it that you want and why is that important to you. Find a way to articulate that to your adviser and then hold him or her accountable for helping you to do that. .