Years ago I worked with a prominent attorney, a brilliant
“older statesman” now deceased. Late in
his career he was lauded at a banquet held in his honor. One of the banquet speakers noted the
attorney’s unusual method of simplifying his law practice. The method was a major factor in his law
practice’s remarkable success, it was said.
His simplification method?
Three stacks of paper.
On his credenza.
One stack was for legal matters needing immediate
attention. One stack was for legal
matters that would likely benefit from extended time for thinking, analysis,
and reflection. And, somewhat of a
surprise, one stack was for legal matters that were likely to resolve
themselves, typically by non-legal means.
That stack received little attention – purposely.
The attorney’s brilliance included an uncanny ability to
determine which legal matter belonged in which stack of paper. And an even better ability to determine if
and when a legal matter needed to be moved from one stack to another.
The U.S. Department of Labor is considering a rule under the
Employee Retirement Income Security Act of 1974 (ERISA) that would, in a
nutshell, assign “fiduciary status” to those who provide financial advice about
employee retirement – for example advice about your 401(k) account. As a fiduciary, the advice provider would be
duty-bound to place the advice recipient’s interests first, ahead of the
provider’s own interest. Presently, a
provider of retirement financial advice generally need only meet a suitability
standard: i.e., is the suggested
The proposed ERISA rule has triggered substantial debate and
politicking. Opposition to the proposed
rule is fierce including because the stakes are high: U.S. financial services firms receive
billions of dollars of revenue annually in connection with retirement financial
products that, although suitable, may not always place the advice recipient’s
interest first. A House of
Representatives committee and a Senate subcommittee have voted to not fund
implementation of the rule. An
influential trade association for financial services firms has proposed an
alternative that doesn’t include a true fiduciary concept. And there’s little doubt that if the rule as
currently proposed becomes effective, then the rule’s validity and
enforceability will be challenged in federal lawsuits.
Some financial services firms’ principal opposition to the
proposed rule is their view that it would have the opposite of its intended
effect. Instead of helping retirement
financial planning, goes the argument, the rule’s burdens (and associated
administrative and compliance costs, etc.) paradoxically would limit the amount
and quality of retirement financial advice available to the U.S. workforce and
retirees. Some commentators believe that
paradoxical forecast is accurate. Others
believe that forecast is pretext, the real reason being financial services
firms’ desire to preserve substantial recurring revenues.
Let me suggest that the debate over the proposed ERISA rule
is a matter which belongs in that last stack of paper: a matter that likely will resolve itself over
time, by non-legal means. That is, in
the long term it likely won’t much matter whether the proposed rule becomes
effective or is watered down, tabled, or withdrawn.
Why? The reason is
technological advances in investment software systems, which are becoming
increasingly sophisticated, efficient (for both advice providers and advice
recipients), customizable, and popular.
These technological advances will continue to lower the costs of
providing quality, tailored investment advice and investment choices, thereby
addressing directly the principal opposition to the proposed ERISA rule. The same advances will make higher quality
advice and planning more available, in most cases at lower costs, addressing
directly the principal aim of the proposed rule. And so improved, innovative technologies will
both defuse the principal argument advanced by the proposed rule’s opponents
and achieve the objectives intended by the proposed rule’s proponents.