Securities industry lawyers counting on a big payday from the reams of expected lawsuits filed against the U.S. Department of Labor’s fiduciary standard could be disappointed by the final ruling issued on Wednesday, which some observers describe as watered down and less muscular than originally anticipated.

The final version of the DOL’s hotly debated fiduciary rulemaking regarding advice for retirement plans under the Employee Retirement Income Security Act of 1974 (ERISA) had a number of changes from the proposal put forth last April, which in turn was a re-proposal of the original version in 2010. Among them is a time extension to implement the DOL’s requirements.

According to Erin Sweeney, of Counsel at Miller & Chevalier in Washington, D.C., the most onerous provisions of the regulation––preparation of policies and procedures, new disclosures and new contract provisions––will become effective on January 1, 2018 versus the original eight-month compliance time frame. In addition, the DOL eliminated some of the proposal’s most contentious disclosure requirements such as the requirement to develop investment projections and to distribute an annual disclosure to investors. 

“Initially, the concern was if it [DOL rule implementation] was given a longer lead time than eight months that any new administration would get rid of it. Rather than worry about the eight months, they took away a lot of the teeth here,” says Sweeney, whose practice focuses on fiduciary issues pertaining to employee benefit plans.

Among the provisions in the final rule: advisors don’t act as fiduciaries simply by recommending a customer hire them for advisory or asset management services; proprietary products such as fixed index annuities and variable annuities can be recommended by advisors who won’t have to tell clients about similar investments offered by competitors; and under a best-interest contract exemption, advisors to small business clients that sponsor 401(k) plans won’t need to specifically state potential conflicts of interest to their fiduciary obligations.

These changes surprised some observers.

“With this final regulation, the DOL had to take a really close look and decide whether they wanted to take a strong position and take on the market, and I think they blinked on that one,” Sweeney says. “They had to do something because the Obama Administration made this a centerpiece, but all of the big pieces have kind of gone away. And financial institutions will get the time they need to revamp their contracts, and it will really be business as usual.”

Perhaps the folks at DOL looked across town in the nation’s capital and noticed the legal challenges confronting the Environmental Protection Agency’s assertive proposals to combat air pollution and climate change, some of which required redrafts to better take into account compliance costs for affected industries.

One of the big compliants about the DOL fiduciary rule was that anticipated compliance costs associated with implementing the rule would make it too costly for brokerage firms to service small retirment plans.

“Some of these activities now allowed under the DOL’s fiduciary duty rule, no true fiduciary could ever engage in,” says Andrew Stoltmann at the Stoltmann Law Offices in Chicago, who focuses on securities litigation. “The fact you can still recommend proprietary products, variable annuities, equity-indexed annuities . . . those are some of the more toxic, high-commission products out there. A real fiduciary such as a registered investment advisor could never recommend those products.”

That said, long-time opponents of the rule aren’t clicking their heels with joy over the revamped rule––at least not publicly. In prepared statements, both the Securities Industry and Financial Markets Association and the Financial Services Institute, an advocacy group representing more than 100 independent advisor and broker-dealer firms, said they will spend the coming days scrutinizing the 1,028-page ruling.

Before the revised DOL rule came out, various financial industry trade groups had been threatening legal challenges to efforts to extend ERISA fiduciary protections to IRA accounts and small retirement plans. And while it’s expected that legal challenges are still likely, they might not be as frequent or ferocious.

“The securities industry will still file court challenges to this rule,” Stoltmann says. “They still don’t like it. But I can promise you that behind closed doors today SIFMA’s lobbyists are getting a high five. They dodged a bullet.

“The good news with this watered down rule is I think it’s now relatively bulletproof from a legal, or court challenge perspective,” he adds. “The DOL really did incorporate many of the changes the securities industry wanted in the rule. As such, it will be so much harder to get this thing overturned in court. And clearly that’s why the DOL did it.”

The Labor Department couldn’t be reached for comment. 

Whatever happens next, it's clear the whole fiduciary debate regarding financial advice remains unfinished business, particulary when there are two agencies setting their own fiduciary agendas. "I think there are a lot of issues surrounding the lack of coordination with the SEC, and how can you simultaneously comply with SEC and ERISA rules," says Beth Dickstein, a partner at law firm Sidley Austin LLP's office in Chicago.