One of the biggest proponents of best-interest advice and low-cost investing is of two minds on a currently delayed fiduciary regulation.

In a letter sent Monday to the U.S. Department of Labor and signed by Chairman and CEO Bill McNabb, Vanguard weighed in on the review and delay of the fiduciary rule to argue that the rule's best-interest standards should be modified to address concerns about access to retirement and investment advice, and that the rule's delay should be extended to allow for analysis and revisions.

“We believe that the rule as drafted harms investors through reduced access to products, information and advice, and is likely to unnecessarily increase litigation and cost to investors seeking retirement services,” wrote McNabb.

Long in the making, the DOL’s regulation would more broadly define fiduciary advice and apply more stringent standards of best interest across retirement investment recommendations. The DOL slated most of the provisions of the rule to become applicable on April 10, but later delayed enforcement to allow for an additional 60-day period of review and comment following a request by President Donald Trump.

Provisions of the rule must be revised, says Vanguard, or investors will become confused by multiple standards for advice and may lose access to informational resources provided by advisors, plan sponsors and investment firms.

Otherwise, Vanguard’s letter strongly supports applying a fiduciary standard to retirement advice, and to all investment advice in general.

“Vanguard strongly believes that investors should always receive investment advice that is in their best interest, and those who provide investment advice should be held to a fiduciary standard,” wrote McNabb. “As a result, Vanguard supports the Department’s efforts to require those who provide investment advice to retirement accounts to do so in the investors’ best interest.”

Vanguard uses its “Advisor Alpha” concept to argue that a fiduciary rule should not negatively impact an individual’s ability to access advice. Since advisors add most of their value through planning and behavioral wealth management, not asset allocation, a too-stringent rule would exacerbate the advice and retirement gaps.

To make his point, McNabb cites the enactment of fiduciary reforms in the United Kingdom, which led many advice providers to avoid providing advice to clients with lower asset levels and raise their account minimums.

The DOL’s definition of financial advice is too broad, according to Vanguard. In its letter, the company proposed that the rule be revised, narrowing the definition of fiduciary advice to exempt investment education and sales information delivered to investors.

To support narrowing the rule, Vanguard cites data from its recordkeeping business: While 75 percent of the participants in those retirement plans have access to investment advice or management, only 16 percent have used those services, suggesting that participants and retirement investors are more dependent on educational resources and product information than they are on formal financial advice.

As currently enacted, the DOL rule could have a chilling effect on retirement plan features that allow one-step enrollment and investment that have had a measurable impact on participation and savings rates, according to Vanguard, especially concerning actionable education and messaging to plan participants to “enroll now.”

Rather than revoke the rule, Vanguard argues that the DOL should revise the rule to meet its objectives while protecting investors’ ability to access retirement advice.

“Revoking the rule in its entirety would allow some providers to continue to operate under a lower standard of care, different from the fiduciary duty their clients may believe they enjoy -- ultimately sowing confusion and undermining investors’ retirement security,” wrote McNabb.

The letter recommends that the DOL eliminate “arbitrary” distinctions between clients and industry channels to ease compliance. Rather, Vanguard argues that the DOL and other federal agencies should attempt to harmonize their requirements for all financial advice regardless of method of delivery, nature of recommendation or client size.

In particular, robo-advisors should face the same requirements as human advisors, wrote McNabb, and rollovers shouldn’t be treated any differently than investment decisions within a retirement account.

Vanguard also believes that the rule’s best interest contract exemption, or BICE, will increase advisors’ cost of compliance and reduce access to retirement advice, information and education among IRA account holders and plan participants. The BICE should be applicable to advice given to sponsors regardless of plan size. Currently, the rule limits the BIC exemption to investment advice given to sponsors of plans with less than $50 million in assets.

“The arbitrary distinction between small and large retirement plans is an element of the definition that will harm retirement investors if it is not amended in tandem with the Department’s re-evalution of the BIC Exemption,” wrote McNabb.

The BIC Exemption should be limited to its Impartial Conduct Standards, and provisions encouraging enforcement of the rule via class-action litigation in state courts should be omitted, according to Vanguard.

McNabb argues that the plaintiff’s bar is a poor substitute for direct regulation from agencies like the DOL, IRS and the SEC.

“An enforcement system that substitutes class-action litigation for direct oversight by the Department and Internal Revenue Service threatens the critical uniformity in administration that ERISA was designed to promote and will drive up costs, thus lowering investors’ returns,” wrote McNabb.  State courts have no experience applying fiduciary standards or prohibited transaction exemptions as they currently exist under ERISA.

Recently, Morningstar proposed a third-party, big data-driven solution that would audit individual portfolios to determine if investment advice adhered to best-interest standards, rather than litigation that would likely involve comparing a plaintiff’s portfolio to skewed samples of its peers.

McNabb also criticized the decision to enact and enforce the fiduciary rule in piecemeal form. Advice providers will be more likely to limit their provision of investment education and information to avoid liability, according to Vanguard, rather than adopt procedures to comply with the rule.

The current delay and review of the fiduciary rule, which pushed back the regulation’s applicability date to June 9, is insufficient to meet the demands of a President’s Memorandum instructing the DOL to conduct a complete economic review of the rule.

In his letter, McNabb argued that the DOL must update its cost-benefit analysis of the rule and any potential delay to reflect changing conditions within the financial and investment industries, mainly, the flood of assets away from expensive, commission-based products and towards passive, low-cost funds. Because the economic analysis supporting the rule was drafted in the past, and asset flows into low-cost products have accelerated in the interim, the DOL’s current analysis “likely overstates” the benefits of the fiduciary rule and the potential costs of its delay.

Yet Vanguard says that the DOL shouldn’t delay the rule to wait for other regulators, like the SEC, to act. Instead, the DOL should work to make sure the public receives similar levels of protection across all investment experiences.

“Advisors and service providers, like many investors, do not operate well in an environment of uncertainty,” wrote McNabb. “It is unlikely that retirement investors will have access to greater protections of the definition of fiduciary investment advice because providers are unlikely to develop services to comply with a rule when only half of the conditions are settled, and likely will choose to avoid fiduciary status instead.”