business man with finger to his lips frowning

What's worse: The SEC's Regulation Best Interest or 3.6 Roentgen? After this past week, we may just have to wait to see the extent of the fallout from the courtroom.

A funny thing happened as I was researching the Reg BI story (see "How Reg BI Changes the Fiduciary Landscape for the 401k Plan Sponsor," FiduciaryNews.com, September 10, 2019). Nobody was talking.

This was quite different than what happened when the DOL came out with its now vacated "Conflict-of-Interest" (aka "Fiduciary") Rule in 2016. Back then, everybody was talking. And talking and talking.

Both sides couldn't stop talking enough. Fiduciary advocates, for the most part, saw it as a step forward (though a few purists saw it as a capitulation). Opponents of the Rule made their voices very well heard, initially through threats of lawsuits and finally with the lawsuits themselves.

With the SEC's Reg BI, it was all crickets. Sure, you had your initial superficial reactions, but, after that, it was the Cone of Silence. Even my usual high-placed and highly regarded sources held back. It was either "I don't want to go on the record" or "Our compliance department is still sifting through the wording."

Most noticeable, however, was the lack of coordinated vocal opposition from those who successfully challenged the DOL's attempt at a universal fiduciary rule (at least as applied to the retirement market).

Why do you think normally vociferous industry leaders suddenly invoked omertà?

Naturally, I can offer a few theories. (I mean, really, did you expect any other reason for me to ask the question?)

First, there was a genuine concern that the initial interpretation of Reg BI was incorrect. In fact, the SEC did have to clarify things like whether registered investment advisers could still refer to themselves as fiduciaries. (After initial reports indicated "no," later reports said "yes.") Then there was the whole "does this apply only to brokers?" question. (The answer is, although the regulation is designed to address concerns with brokers, it appears RIAs also have new compliance requirements.)

So, mistaken thoughts made early on in the process may have made some people gun-shy to say more.

That's understandable.

But I don't think that's the real reason for the unusual silence.

Let's go back to the original legend behind omertà. It's a threat. It means you either keep your mouth shut or we'll shut it for you – in a permanent way.

How could the SEC engender that level of fear where the DOL hasn't?

It's simple. The DOL's regulatory reach is very narrow. Unlike the SEC, the DOL rarely finds itself in a position to randomly test an investment provider. (Plan sponsors, on the other hand, the DOL can randomly test to their hearts' content.)

The SEC can come through your door like a hot knife through butter. You can't stop them. And if you try, well, then, you must have something to hide. Nope. The culture of the business is to be as kind as possible to the SEC, for they have the power to end your (business) life.

As a result, he who speaks ill of the SEC had best have deep pockets or off-shore accounts. And even then, you're rolling the dice.

This may be why even the fiduciary purists are relatively silent when it comes to Reg BI.

It is the third reason for silence that is most disconcerting. The silence of the opponents to the original DOL Rule.

Why might they be silent? Well, if you don't have a reason to complain, you don't have a reason to talk.

And that possibility has me very worried, as it should every investor.

Instant Insights /

Reg BI: Why the unusual silence from industry? – Carosa

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