During the current administration, we have experienced an uptick in rules and regulations that introduce added administrative burdens and extra costs for firms and advisors.
That’s a problematic development by itself. But it becomes even more of an issue when you consider the potential fallout for Main Street American investors, who could have less access to investment advice, products and services.
This dynamic is what has made the stakes this year so meaningful. In fact, in an era when regulators have become especially active, 2024 has been a year like no other, making it hard to overstate the significance of what happens over the next few months.
The Fiduciary Rule
The biggest challenges come from the Department of Labor (DOL). In April, it finalized a new fiduciary rule, redefining who qualifies as an “investment advice fiduciary” under ERISA. In the lead-up to that, we worked hard to thwart this effort, issuing a call to action for our members to contact their Congressional representatives and the DOL to explain how the new rule negatively impacts them and their clients.
Unfortunately, our deep reservations – which reflected the views of the broader industry and many investors nationwide – fell on deaf ears. The DOL finalized the rule anyway.
The move came after the administration, just after the proposal was introduced, called commissions “junk fees.” Not only do we strongly dispute that notion, but the rule itself is flawed in a variety of ways.
For one, it makes it harder for investors to work with an advisor and adds significant paperwork and red tape. It also attempts to sidestep a 2016 federal court ruling that vacated a similar proposal. And, finally, it’s the product of a rushed rulemaking process, which left the Department with less time to review the thousands of comments it received from the public.
Because of this, FSI decided to participate in the legal effort to thwart the rule’s implementation. In June, via a plaintiff-intervenors’ complaint, we joined a lawsuit challenging the rule in the Northern District of Texas.
Recently, the court issued a stay of the fiduciary rule, preventing it from going into effect while the court makes its decision in the case. It followed a similar judgment days earlier in another Texas court. Notably, the judge in that case pointed out in the stay that the 2024 version of the fiduciary rule “suffers from many of the same problems” as the one vacated years earlier.
The Independent Contractor Rule
Meanwhile, the DOL’s independent contractor rule, released in January, is another significant cause for concern and could have enormous implications for the industry.
Independent financial advisors choose the independent model to operate their own businesses and best serve their clients as they see fit. Many have even switched to the independent model after working as an advisor employee at a financial services firm. However, the DOL’s new independent contractor rule jeopardizes independent advisors’ status as independent contractors.
Millions of Main Street investors will lose access to quality professional financial advice if that freedom of choice eventually gets taken away. We have repeatedly communicated this to the DOL and shared the harm the rule could inflict on the tens of thousands of independent financial advisors who are small business owners in their communities.
In response to the final rule’s release, FSI, with coalition partners, filed a lawsuit in March to overturn this rulemaking.
Getting Involved
Going forward, we stand ready to use all the tools in our advocacy toolkit to fight for a regulatory environment that works well for our members.
We need your help to continue these efforts. If you’re a member, respond to our calls to action, rally fellow members and explain the potential stakes to your clients so they can get involved, too.
And, if you’re not currently an FSI member, consider becoming one. There’s a limit to what we can do individually, but we can accomplish so much together.
Dale Brown is the President and CEO of the Financial Services Institute.
