Have you ever wondered what it would have been like to be a fly on wall while the DOL made what eventually became known as the fiduciary rule? I recently had a chance to relive this moment by talking with the one person who was at the forefront of this effort: Phyllis Borzi.
When the DOL finally issued its conflict-of-interest (aka "fiduciary") rule, it was met with enthusiasm and disdain. Many might not realize this disdain came from both sides of the spectrum.
Opponents obviously disliked it. Some fiduciary proponents also had misgivings. For them, the new fiduciary rule wasn't perfect. They wanted more. Such was the dilemma faced by the DOL in the years leading up to finalizing the rule.
Recommended For You
Have you ever wondered what it would have been like to be a fly on wall while the DOL made what eventually became known as the fiduciary rule? I recently had a chance to relive this moment by talking with the one person who was at the forefront of this effort (see "Exclusive Interview: Phyllis Borzi says Original Fiduciary 5-Part Test Left Plan Sponsors 'Holding the Bag'," FiduciaryNews.com, May 15, 2018).
I couldn't help but ask the obvious: "What would the perfect fiduciary rule look like?"
Before we delve into this, we must first consider the issue Borzi said motivated her to push for the rule. As Assistant Secretary of EBSA, she had clear jurisdiction over the retirement plans of America's workers. After polling the DOL veterans, she determined the definition of fiduciary needed fixing. Too often, service providers would find loopholes in ERISA's 5-part test that determined fiduciary status. This effectively shielded them from lawsuits. The same couldn't be said for the plan sponsor.
Borzi wanted to close these loopholes. The final language of the rule represented a series of compromises that disappointed purists but recognized the reality of the current regulatory framework.
Neither the DOL nor the SEC have complete authority over fiduciary matters. The SEC, as the name implies, addresses matters concerning securities. Created by the Securities Exchange Act of 1934, the SEC enforces several other laws, including the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Sarbanes–Oxley Act of 2002. Of relevance to us, it's the SEC responsibility for the Investment Advisers Act of 1940.
This might sound odd. All those other laws clearly addressed securities. The Advisers Act covered individuals, not securities. To understand the relevance to the SEC, we need to remember the Advisers Act came out of the SEC's study of investment trusts, which came about because of the Public Utility Holding Company Act of 1935. Initially, this study resulted in the Investment Company Act of 1940.
The 1940 Act told the SEC how to regulate mutual funds, which, need we forget, are securities. Investment Advisers are ties to mutual funds because investment advisers manage mutual funds. At least in the beginning, this is why the SEC held sway over investment advisers and not, say, the Office of the Comptroller of the Currency (which regulates banks and, in particular, trust companies and trust officers).
Meanwhile, about three decades later, ERISA brought the DOL into the equation. In fact, according to Borzi, the DOL's role in overseeing retirement plan investments supersedes that of the SEC. But while the DOL monitors tax-deferred investments, the SEC handles taxable investments.
On top of this, the SEC must ensure the capital markets continue to work. The requires them to make live easier for the traditional brokerage business. Brokers make the markets run smoothly. This isn't an advice-giving service. It's a stock-selling business; hence, the term "sell side." For those not keeping score, investment advisers represent the "buy side." Hmm, so the SEC regulates both the buy side and the sell side?
You begin to see the problem with coming up with the "perfect" fiduciary rule? So, what would the perfect fiduciary rule look like? More importantly, what would it need?
It requires both the SEC and the DOL to agree to terms. Or, it may require the SEC and the DOL to cede authority for regulating advisers to some other body. In theory, this body will have had a history of regulating those who have accepted the yoke of the fiduciary.
Hmm, could that be the same body that regulates trust officers?
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
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).
