Scott Cooley: Policy & Investing

Memo to Industry: Get Behind Fiduciary Rule

Scott Cooley

In the mid-1960s, with the United States lacking a clear path to win the Vietnam War, former Sen. George Aiken, R-Vt., suggested that America declare victory and withdraw from the fight. With respect to the Department of Labor’s proposed fiduciary rule for retirement advice, the financial-services industry should declare victory on behalf of investors and stop fighting these inevitable, necessary regulatory reforms.

To recap, on Tuesday the Department of Labor proposed an amendment to the fiduciary definition under ERISA, the Employee Retirement Income Security Act. In short, the proposal would require any individual receiving compensation for providing investment advice to a plan sponsor, plan participant, or IRA owner making a retirement investment decision to adhere to a series of fiduciary duties--that is, to act in the best interests of their clients. The rule is based, in part, on a Council of Economic Advisors analysis showing that when individuals receive what the White House calls "conflicted advice," they tend to enjoy lower investment returns. Obviously, battling these reforms produces optical challenges: Who wants to come out against operating in clients’ best interests or in favor of conflicted advice?

Scott Cooley does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.