As of this writing, the fate of the Department of Labor’s fiduciary rule is anybody’s guess. Giant financial services companies are paying their Washington lobbyists generous sums to expunge the rule even as these same firms have also spent millions attempting to comply with it.

Hedging one’s bet may make sense from Wall Street giants’ strategic perspective. After all, these companies have a fiduciary obligation to their shareholders that, until recently, our legal system offered a lot more clarity about than their responsibility to customers.

But the horse is out of the barn and the market has voted. It appears that Merrill Lynch, LPL Financial and Morgan Stanley, to name a few, plan to move ahead and comply with tenets of the rule regardless of how things play out in Washington. Many of the larger independent brokerages indicate they are positioned to follow suit.

After watching independent fiduciary RIAs gain market share for two decades, one might think these firms would deem it in their interest to embrace a business model that clients are favoring. To some extent they are, as the advisory part of their revenue continues to outpace the commission side.

But the biggest question that remains unanswered during the entire process is why the Securities and Exchange Commission allowed the DOL to steal its proper jurisdiction for the last seven years. Some critics of the DOL rule say they would prefer a uniform standard promulgated by one regulator to develop and enforce the rule and believe the SEC already had the standing to regulate investment advice. It is also much more familiar with the issues involved.

Investors continue to vote with their dollars and they are becoming increasingly well-informed. They may not be able to offer a succinct definition of fiduciary but search traffic shows they are flocking to websites to learn about it.

It would be nice to be confident that the SEC would step forward and devise a standard that required advisors to place clients’ interest first together with a set of concrete principles that spelled out defining what crossed the line and what didn’t. The DOL rule failed to do so, leaving it up to the courts and the plaintiff’s bar to determine whether disputes were legitimate. That may yet prove to be the department’s undoing. But the recalcitrance of the SEC during the last seven years doesn’t offer much reason to expect them to assume their appropriate role.

Evan Simonoff
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