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 investment suitable?
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.