Most Courageous: Phyllis Borzi and her EBSA Team

Here are some questions for you:

• Who has saved investors billions of dollars in unnecessary fees over just the past year? 

• Who, by means of simple regulatory rule changes, compelled disclosure of fees and costs of qualified retirement plans in a meaningful way to both plan sponsors and plan participants, has led to ever-increasing pressure on advisors to plan to select lower-cost mutual funds, thereby securing a better retirement for tens of millions of our fellow citizens?

• Who, despite millions and millions of dollars of lobbying by opponents in the insurance industry and large Wall Street firms, is forging ahead to bring fiduciary duties to nearly all providers of investment advice to qualified retirement plan sponsors, and to participants of retirement plan and IRA accounts?

The answer is Phyllis Borzi, Asst. Secretary of Labor, and her great team at the Employee Benefits Security Administration (EBSA), part of the U.S. Department of Labor (DOL).

In essence, the DOL / EBSA forges ahead, while FINRA continues over decades of mistakes in failing to raise standards, and SEC appears reluctant to face up to Wall Street and apply fiduciary standards to personalized investment advice.

Of course, it is easy to criticize FINRA (f/k/a NASD), whose 1942 adoption of Rules of Conduct lacked the essential ingredient - incorporation of fiduciary duties for the advisory activities of brokers (as exists under the state common law. This is the case even though, back in the early states of federal securities regulation, and now, courts and arbitrators continues to find brokers in relationships of trust and confidence with there clients and hence subject to broad fiduciary duties.

Moreover, FINRA and its member broker-dealer firms have a long history of opposing the essential consumer protections imposed by the fiduciary principle, and which for so long have been known to exist for those who are entrusted to provide personalized investment advice. The Maloney Act of 1938, which for its authors had the goal of raising the securities industry to the highest standards of professionals, is but a dismal failure, due to FINRA.

It is also easy to criticize the SEC, who despite an early history of imposing fiduciary duties upon brokers in relationships of trust and confidence, has so often retreated from its earlier stances. In recent years it has permitted brokers to hold themselves out as trusted advisors (through the use of titles denoting relationships of trust and confidence, and by advertising which obscures the merchandizing efforts of those who sell products). The SEC's most recent release, seeking comment on the application of fiduciary duties to brokers, is indicative of a possible failure in key understandings - now informed by many academic studies - that financial literacy is mostly ineffective, and that disclosures are inadequate (due to many behavioral biases) as a means of consumer protection when such great information asymmetry is present in today's complex financial world.

But you can't criticize the DOL's effort, at least with respect to the EBSA under the leadership of Phyllis Borzi. Despite fierce Wall Street lobbying against her efforts in recent years, she has remained steadfast. Her team has undertaken the altogether necessary steps to re-propose the "Definition of Fiduciary" rule sometime during 2013, backed now by an extensive economic analysis. And this re-proposed rule, if enacted, will be a game-changer. With its potential application to IRA accounts, another $5 trillion of retirement savings will be brought under the fiduciary realm, in addition to the trillions of dollars in qualified retirement plan accounts advised upon currently by those who escape fiduciary duties under the current befuddling and narrow definition of fiduciary (as exists since 1976 ERISA rules were adopted).

How impactful will Phyllis Borzi's re-proposed rule be? Just imagine the powerful force of having individual investors aided by fiduciary "purchaser's representatives." As a result, there will be renewed pressure to lower fees and costs throughout the investment industry. Tens of billions of dollars of more savings for investors, each and every year, resulting (though the miracle of compounding) in a "retirement endowment" for our fellow citizens reaching hundreds of billions of dollars - or even trillions more - than would otherwise be possible.

More importantly, workers will get better advice, and they will be taught to save more, when aided by truly objective financial advisors. As greater and greater amounts are saved for retirement, and the amounts grow better over time through better investment choices, our fellow Americans will become better prepared for their retirement and other financial needs. This is highly important for our nation, as well, for it is self-evident that our federal and state governments are ill-prepared to lend future economic support to an ever-growing number of retirees who, lacking adequate retirement savings, would call upon governments for assistance.

Just as important, with increased saving and better investing will come greater capital formation. The cost of capital will in turn be lowered for companies, both large and small. This will assist in fueling a new explosion of economic growth in our country. Indeed, it is hard to imagine any business owner or executive, large or small, who could not be excited about this re-proposed rule and its positive implications for America's economic growth. (Except, of course, those executives on Wall Street at at insurance companies who currently extract excessive rents from qualified retirement plan and IRA accounts.)

Of course, Phyllis Borzi's efforts, and those of her EBSA team, are not going unnoticed on Wall Street. The powerful force of disintermediation which the application of fiduciary principles will impose on Wall Street and insurance companies will mean that the financial services sector's share of the profits generated in this country, which has once again risen above 30% (and perhaps much higher), will decline to much more reasonable levels. In essence, Wall Street's investment banks and broker-dealers will be hurt, economically. They won't be able to pay out such great bonuses to their executives and employees. They won't consume such a great portion of the wealth of our country. (But who will cry over that, except those who work in the insurance companies and for Wall Street's large broker-dealer firms?)

The forthcoming re-proposal of the "Definition of Fiduciary" rule, despite its huge important to hundreds of millions of Americans, and to the economic future of America itself, will face substantial opposition from Wall Street's legions of lobbyists. These well-paid lobbyists will coddle up to those in Congress, and supply both Senators and Representatives with pre-worded letters written in opposition to the proposed rule (and supply them with campaign cash, as well). With its powerful and monied lobby, Wall Street and the insurance companies will also try desperately to influence the White House, OMB, the Department of the Treasury, and whoever else will listen.

But I am optimistic, despite the huge economic forces lined up against Phyllis Borzi and her team at EBSA. EBSA has done its homework, with a substantial economic analysis supporting the re-proposed rule. The EBSA team members have put their heart and soul into the re-proposed rule. The economic analysis they will provide will, no doubt, clearly demonstrate the huge benefits of the re-proposed rule to tens of millions of Americans. The carefully crafted re-proposed rule will, if adopted, create a new, promising environment for the delivery of investment advice to our fellow Americans under the auspices of ERISA's strict fiduciary standard and prohibited transaction rules.

Hence, Phyllis Borzi's cause is our cause.

• This re-proposed rule should be the cause of every financial advisor who cares about our country's future, and their fellow citizens.
• This re-proposed rule should be the cause of every investment adviser who, despite the disintermediation which will occur, sees this proposed rule as both logical and right for our fellow citizens, and good for America itself.
• This re-proposed rule should be the cause of each and every person who desires to become part of a true profession of financial planners and investment advisers, bound together by a common fiduciary oath to act in the best interests of our clients at all times.
• And (as I hope the media will especially realize), this re-proposed rule should be the cause of our fellow citizens - workers and retirees alike - who so desire a future in which they can rightly place their trust in experts who will help them to achieve their lifetime financial goals.

To Phyllis Borzi and her team, I say: "Go for it!" It will take several months for the actual rule to work its way through OMB and other processes, before it emerges for public view. But please don't let this deter your efforts.

To all financial and investment professionals concerned about progress toward a true profession, to our fellow citizens who care about their own retirement security and about the future of America, I ask that you be prepared to lend your support to Phyllis Borzi's noble cause - applying the fiduciary standard of conduct to all of the investment advice provided to qualified retirement plan sponsors, participants, and IRA account holders, in every corner of this great nation of ours.

More to follow ... on this important issue, in the months ahead.

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Yours truly, Ron A. Rhoades, JD, CFP(r)