Aesop sure had a way with twisting with people’s minds.

At one moment in his fable, you’re dealing with a young lad who exhibits an abnormal fear of and fixation on untamed canine beasts. No sooner are you convinced it’s best to shun this little chicken, it turns out he’s right, but not before the imaginary wolf he’s been crying about becomes real and devours half the city of Townsville.

In many ways the fiduciary rule can be likened to the wolf in Aesop’s fable. Folks have been sounding the alarm of its impending arrival ad nauseam. And I’m not singling out just one side of the debate on this. no. To borrow from another fairy tale, the fiduciary rule is neither as hot nor as cold as the two opposing sides argue. Unfortunately, it ain’t Goldilocks, either.

Some look at June 9^th as a watershed, the day the DOL’s much heralded conflict-of-interest (aka “fiduciary”) rule became self-aware. Or so we’re led to believe from much of the reporting. For a number of reasons, while investors are likely to see some changes, (see “What’s the Immediate Impact of the DOL Fiduciary Rule on Current IRA Holders and Future Rollovers?” FiduciaryNews.com, June 13, 2017), sober minds realize the so-called “Big Bang” of June 9^th is nothing more than a “Meek Whimper.”

Yes, it’s excellent the preliminary debate raised the level of consciousness of “fiduciary” in the minds of investors. (In this manner, it’s probably more significant – and correct – to say the intense discussion leading up to the rule’s implementation made the public “self-aware” of the importance of “fiduciary.”) Yes, it’s excellent we now appear to have a framework for a level playing field among investment advisers and advisors. And, yes, it’s excellent conflicts-of-interest won’t get in the way of helping folks retire in comfort.

But, no, the rule as it exists today registers just a mere tad above “much ado about nothing.” Let’s explore why this is so.

First, it currently contains no formal punishment for non-compliance. This is because the DOL has specifically said it would not enforce the rule until next January.

Is there a chance class action attorneys might fill the void left by the DOL? Maybe, but probably not. It takes time to accumulate a significant number of victims, and it’s likely this threshold won’t be exceeded until sometime past January, at which time the DOL will presumably be on the case.

Even if the critical mass is attained prior to the DOL cavalry’s arrival, there’s just enough uncertainty in the precise nature of the rule, again, in its current form, to place a high level of risk in attempting to take legal action. So, we have a rule, but we have no penalty for failing to follow it. Said another way, if a rule falls without enforcement, will anyone hear of it?

Second, the original wording of the rule, despite what some may be saying, contains loopholes wide enough to drive an RV through. I mean, what precisely does “reasonable” mean? It can’t be measured in terms of the “average” fee, lest we slip into an irrational Wobegon spiral. Instead of mythical Lake Wobegon where “all the children are above average,” we’ll be talking about the mythical service agreement “where all fees are below average.” It just can’t happen. No. Really. Mathematically all fees cannot be “below average.”

So, then it means it’s OK to have different fee levels (including fees derived from conflicts-of-interest). How, then, do we measure “reasonable”? Experienced readers know where this is heading. The “reasonableness” of fees will be measured not by the dollar amount paid, but by the values derived in relation to the dollar amount paid. In other words, higher fees must yield higher value.

Ah, but then we get into the ticklish question of “What is Value?” There’s the rub. One man’s value is another man’s commodity.

Consider this, can something have any “value” if it doesn’t come at a price? How often have we heard stories of people overlooking expensive gifts while placing hard earned trinkets in secure curio cabinets? Reframing this to 401(k) plans, do two identical benchmarking services offer the same value if one is free and the other costs five figures?

You may think the answer is easy, but let me ask it another way. Which of these two identical benchmarking services would you trust more: The one that was thrown into an existing service package at no extra cost, or the one that costs you five figures off of an ala carte menu?

Now do you see how hard it is to truly define “value”? It’s one of those “I can’t define it but I’ll know it when I see it” things. And, somewhere in the future, there’s a Potter Stewart wannabe just waiting for some trial lawyer to bring a fiduciary rule case before him just so he can make this obscene statement about “value.”

Finally, we still don’t know how the story ends. The DOL is already on the record saying they continue to look at the rule’s wording and aren’t promising they won’t change it. In fact, this is one of the reasons they used to justify deferring any enforcement until the start of next year. So, all those fantastic new benefits this rule offers? They may be washed away by the end of the year.

In the end, just like you should never believe your own press clippings, don’t get caught up in all the hype surrounding the fiduciary rule. Still, again, just like the fact you get press coverage indicates at least some think you have something significant to offer, recognize the fiduciary rule does have merit. We’re just not yet exactly sure what it is.

Instant Insights /

Don&rsquo;t fall for the hype, but don&rsquo;t ignore the DOL's rule either: Carosa

More From HR Executive

Related Stories

Recommended For You

Don’t fall for the hype, but don’t ignore the DOL's rule either: Carosa