On Friday, President Trump signed an executive order that begins the process of rolling back Dodd-Frank. He also signed an executive memorandum that directs the Labor Department to review the effect of its fiduciary rule on investors’ ability to access financial advice. If there is an adverse effect, the memorandum authorizes the DOL to rescind and revise the rule.
The DOL rule has been a point of particular discussion since the inauguration between a group of us at Celent and our parent company, Oliver Wyman. The discussion focused not on whether the rule would be implemented but instead on how insurers should plan and react. It would be easy to believe that President Trump’s executive memorandum is the first step in the revocation of the rule because it is delaying it. It is certainly a believable outcome; however, we believe delaying preparation would be the wrong decision for a number of reasons.
Most prominent among them is that there is considerable uncertainty as to what Friday’s delay actually means. Insurers are, by definition, in the business of assessing and hedging risk and not knowing how the DOL review will turn out has risk associated with it. We believe that the right response is to hedge this risk by continuing to prepare for the implementation of the rule, even if the rule is likely to be modified or even rescinded.
Why? Because the fiduciary rule as it written today might happen. It might go into effect with a modest delay. It is easy to see a path that results in changes in compensation in the qualified market. It is even conceivable that this rule, or a similar one, would ultimately affect the entire life insurance and annuity market. There is considerable precedent, globally. For example, the UK implemented their Retail Distribution Review (RDR) in 2013.
In simple terms, the end consumer, ultimately, will believe that a rule that requires advisors to make decisions in their best interests would be popular. We suspect most of them expect that their advisors already do this!
There is clearly a cost of implementing the new rules and this cost is significant. However, most companies have already made the majority of their investment and completing these efforts makes sense. We are even hearing from advisors that they believe that conforming to the rules of a fiduciary could be a competitive advantage. You can see it now: “I work in your best interests. My competitors don’t”.
This is not the time or place to debate the topic in detail, but we would welcome the conversation. We would love to hear your thoughts on the matter. Feel free to email me directly at email@example.com. If I get enough feedback, I’ll post a summary soon.
You might also find a few publicly available reports from Oliver Wyman interesting: