Leave it to the lawyers. Just when the financial services industry was expecting to learn exactly what the new playing field created by the Department of Labor would look like, the rule came down on April 6, posing almost as many questions as it answered.

At first glance, the fiduciary rule appeared far less onerous than many anticipated. Labor Department Secretary Thomas Perez gave a green light to proprietary annuities. Some people questioned whether, at the very least, there should be more disclosure around proprietary products. But the labor secretary declared that in-house funds, annuities and other retirement vehicles have an “important place in today’s marketplace.”

Perez’s observation that no one can expect a Ford salesman to discuss the merits and demerits of a Chevy also raised eyebrows. Cars may be the biggest single purchase most Americans make, but it’s still somewhat different from a retiree’s life savings.

Still, there was quite a lot of evidence Perez and his staff listened to a broad cross-section of groups advocating on behalf of both consumers and financial services companies. He noted that advisors would not be required to put clients in the lowest cost product, but then he again used the car analogy—that a Yugo was the cheapest car but hardly the best.

Whatever side of the issue you are on, these remarks provide a glimpse of the world regulators are living in, particularly lawyers at the DOL. It’s now a lot easier to see why the SEC and Finra are upset that a bunch of novices have encroached upon their turf. But even regulators who questioned the DOL’s understanding of the investment world seemed to be warming to the not-so-final version. 

Furthermore, there are some uniformly positive things in the new rule—assuming they get implemented. At the top of the list is the increased access to financial advice for employees of small businesses. 

Most small businesses in America are really, really small; employ only a handful of people; and lack the resources to offer a retirement plan. They represent about 40 million Americans.

All said, the guess here is that it would take a lot longer for the fiduciary rule to be implemented than the 2018 target date envisioned by Secretary Perez. If you don’t believe that, just look at the Dodd-Frank law. Aspects of that are still being deciphered like the Egyptian hieroglyphics. Who thinks this will be any different?

Evan Simonoff

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