Perhaps you've heard the phrase "a distinction without a difference." Debaters often fall back on employing this logical fallacy when confronted with an argument they wish to evade. This is the world of euphemism. And it applies to the DOL fiduciary rule. Let me explain.
Politicians and marketers call it "reframing the argument." People who have read too many books might be tempted to call it "sophistry." Normal people simply call it "misleading." We can all agree "a distinction without a difference" is something we want to avoid being accused of using.
But what about "a difference without a distinction"? I could get into the whole Thomas Aquinas and "Just War Theory" thing, but that would just trigger a lot of shouting and marching with the whole mess ending up in the Ninth Circuit. Instead, I'll use a less controversial example: cholesterol. I don't know about you, but ever since I could remember, I was told "cholesterol is bad." Then, one day during a routine check-up, I learned there was such a thing as "good" cholesterol and "bad" cholesterol.
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The fact they were both called "cholesterol" meant there was a difference without a distinction. Good thing doctors figured out it would make sense to put the "good" and "bad" qualifiers in front of the word "cholesterol." Honestly, though, wouldn't it have been better just to call them two completely different names. And, no, "HDL" and "LDL" aren't different enough. Better to call them something obviously different, like "George" and "Martha."
If you think George and Martha have a hard time determining what is "good" cholesterol and what is "bad" cholesterol, imagine the problem they have figuring out if they're getting advice or just being sold a product. Industry nomenclature only compounds this confusion, with terms like "adviser" and "advisor" getting thrown around haphazardly.
You can't even rely on that old adage that an "adviser" must be registered with the SEC, thus they must be a fiduciary. With dual registration, the same person can be both an "adviser" and an "advisor." Of course, just because you're an "advisor" doesn't mean you're not a fiduciary.
Confused? Imagine how George and Martha feel. And things got more confusing last Friday (see "Fiduciary Rule SNAFU: What Happened, What Happens Next, and Does It Really Matter?" FiduciaryNews.com, February 7, 2017).
Now, here's an idea from left field: Is it possible the DOL's fiduciary rule might make this confusion worse? Think about it.
Today only true fiduciaries can call themselves a "fiduciary." Under the fiduciary rule, those selling products can also call themselves a "fiduciary" (all it takes is a BICE). But just because we can call them a "fiduciary" doesn't mean they are not different from a fiduciary not engaging in self-dealing transactions (i.e., transactions that result in compensation based on the products that clients are "advised" to invest in).
Simply put, with the DOL's fiduciary rule as currently written, "advisers" who don't receive commissions, 12b-1 fees, or revenue sharing and "advisors" who do receive commissions, 12b-1 fees, or revenue sharing can both be called a "fiduciary."
Essentially, anyone with a business card and a BICE can call themselves a "fiduciary." And we won't know who's acting in the client's best interest and who isn't until the class-action attorneys tell us. (The DOL never actually claimed to have an enforcement strategy, although that was never really the point of the fiduciary rule.)
Really. How different is that from where we are right now?
This is how it's different: Without the fiduciary rule, those selling products can get away with calling themselves "advisors," but they can't call themselves "fiduciaries."
And, right now, thanks to the DOL's fiduciary rule (remember the part about enforcement not being the real point), being able to call yourself a "fiduciary" is a distinction worth having in the marketplace.
And that's a difference that's important to keep.
While those who oppose it might applaud a repeal of the fiduciary rule, repeal may prove to be a Pyrrhic victory. Repeal would strip them of their ability to call themselves a "fiduciary" by merely relying on a BICE. They would have to actually structure themselves like pre-fiduciary rule fiduciaries have done.
Why? Because the fiduciary rule, without the need for implementation, has created an irreversible momentum in the marketplace.
So, maybe, just maybe, delaying, deferring, or rescinding the fiduciary rule is exactly what fiduciary proponents want.
Don't be surprised if George and Martha find this quite interesting.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
