Seven Core Principles in Delayed Action
The Secretary of Labor, writing in this morning’s Wall Street Journal, finds “no principled legal basis” for delaying the fiduciary rule. (See here for a brief introduction to the rule.) The Department will open the rulemaking for reconsideration through a notice-and-comment process, but the June 9 implementation date will hold. As the rule’s proponents recognize, after implementation, the fiduciary rule toothpaste will be awfully hard to put back in the tube. An industry that changes many of its practices, systems, and contracts to satisfy the rule will probably leave those changes in place even if an amended rule subsequently allows them more flexibility. Indeed, as I discuss here, the fiduciary rule is likely already contributing to consolidation in the broker-dealer industry.
Nevertheless, a reconsideration of the rule is worthwhile. (See here for a discussion by Mark Warshawsky and me about why reconsideration is warranted.) As Secretary Acosta acknowledges, a rule that “limits choice and benefits lawyers” is not the best way to protect investors. Indeed, one of the new administration’s seven core principles for financial regulation is to “empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth.” In a piece yesterday at U.S. News on those core principles, I explained that the fiduciary rule is ripe for reconsideration under these principles because it “is rooted in the belief that investors cannot choose for themselves.”
The fiduciary rule offers us a cautionary tale about the importance of doing our best before adopting a rule to understand its positive and negative consequences. Once a rule is on the books, even when its negative effects come to light, change is difficult.
