By Knut A. Rostad
Originally posted on ThinkAdvisor on March 29, 2017 (registration required)

Labor Secretary Alexander Acosta’s Wall Street Journal op-ed last week on the DOL fiduciary rule is a public service. Secretary Acosta writes with candor on the administration’s opposition. In so doing, he advances the fiduciary conversation.

Acosta first sets the stage for his argument, noting, “Americans should be trusted to exercise individual choice and freedom of contract. Trust in Americans’ ability to decide what’s best for them and their families leads us to the conclusion that we should seek public comment on how to revise the rule.”

He concludes, “The Labor Department will roll back regulations that harm American families. We will do so by respecting the principles and institutions that make America strong.”

Secretary Acosta sets out a philosophy similar to the philosophy offered by Trump advisor Gary Cohn, “We think it is a bad rule. … This is like putting only healthy food on the menu because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

Key takeaways from the op-ed:

  1. The prominence of the “rule of law” and individual freedom standout.
  2. Fiduciary opponents’ arguments on choice, access, costs or workability are laid to rest. They should be. These oft-repeated arguments are distractions, the shiny objects.
  3. The administration’s new focus on deregulation and free markets reframes the fiduciary discussion. It offers an opportunity and new terrain in which to make the case for fiduciary practices on fiduciary terms. Fiduciary groups should grab it.
  4. The new discussion requires new arguments. The wisdom of Bill Clinton advisor James Carville should be recalled: “It’s the economy, stupid.”

As Secretary Acosta suggests, the “rule of law” and the welfare of American workers and families is the perfect lens through which to view deregulation, individual choice, fiduciary duties and retirement advice. Some initial thoughts:

A rule-of-law review suggests stringent fiduciary duties are well-suited for retirement accounts. Why? Fiduciary opponents suggest the rule of law presupposes a fiduciary-free marketplace. Yet the opposite is actually the case. Investment advice, a complex professional service with clear social importance, has been deemed fiduciary in nature for centuries. The rule of law inherently applies fiduciary law to retirement accounts, and fiduciary opponents offer no rationale to conclude otherwise.

Trump advisor Cohn’s own comment implicitly supports this point. He suggests choices of simple and transparent products on a restaurant menu are like choices of complex and opaque professional and socially important services. Similar? Hardly. In fact, again, in law they are treated very differently.

The welfare of American families review also suggests why stringent fiduciary duties are well-suited for retirement accounts. Opponents assert fiduciary law harms investors. Yet the record suggests the exact opposite. The DOL rule seeks to minimize conflicted advice because, as repeatedly affirmed through history by jurists, regulators and advisors, and also demonstrated in mounds of recent research, it’s conflicted advice that harms investors.

To suggest that centuries of law and experience with conflicts are suddenly irrelevant is to suggest social values, legal principles and common practices have been transformed. Have they? Not according to the available research. Yet fiduciary opponents still offer no rationale for this conclusion.

As for individual choice, it’s an argument that merits examination. It does not, however, merit presumption. Again, to the contrary, the relevant history, law, logic and common sense suggest just the opposite. Yet fiduciary opponents offer no rationale for substituting individual choice for fiduciary law.

Secretary Acosta writes, “The rule of law is America’s other great contribution to the modern world.” As such, the department found no “principled legal basis” to further delay the June 9 date. The secretary has performed a public service in his op-ed by redirecting the fiduciary discussion to principles of law. Fiduciary advocates and opponents alike should take note.

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