Specialist Jason Hardzewicz, left, works at his post on the floor of the New York Stock Exchange, Wednesday, Oct. 5, 2016.
Richard Drew — AP
By Matthew Heimer
January 17, 2017

Big banks and brokerages have been publicly fretting about how a new rule on retirement accounts might reduce their income. But at least one observer thinks they should be more worried about how it might jack up their legal fees.

The threat in question is the so-called fiduciary rule, a regulation approved by the Department of Labor last year and scheduled to go into effect this April. The rule applies to retirement accounts, and it states that when working with investors, “The Financial Institution and the Adviser(s) [must] provide investment advice that is, at the time of the recommendation, in the Best Interest of the Retirement Investor.”

That concept may sound astoundingly obvious, but it’s meant to address a significant problem in the retirement-savings world. Currently, many relationships between investment pros and retirement clients are required only to meet a “suitability” standard. In practice, under that rule brokers can and do park clients in investments that are either absurdly expensive—often because they generate chunky commissions for the broker—or highly risky, or both.

The fiduciary rule basically puts pressure on financial-services companies to justify the costs of the retirement accounts they offer. And as Fortune contributor Joshua Brown pointed out when the rule was passed, many big firms are already moving in that direction. They’ve seen the writing on the wall, as more investors have moved their nest eggs into low-priced index funds. They’ve also seen courts side with workers who sued their employers for offering overpriced mutual funds in their 401(k)s. They don’t want to be the mustache-twirling villains charging 6% commissions and 2% annual fees on IRAs when index giants like Vanguard and BlackRock (blk) have proven you can get similar returns for fractions of a penny on the dollar.

But Michael Kitces, a financial planner who writes extensively about retirement investing, thinks financial services firms are focusing on one problem when it really faces two. In a post Monday on his Nerd’s Eye View blog, Kitces argues that the idea of fiduciary duty implicitly holds financial advisors to a minimum standard of competency—and that, disturbingly, many firms wouldn’t be able to prove that their staff met that standard. There are various designations that advisers can earn that require them to prove that they’re competent at helping clients solve financial problems. (Kitces holds many of those designations, as it happens.) But many “client-facing” advisers aren’t required to earn those credentials.

The fiduciary rule would essentially enable a group of disgruntled retirement-savings clients to use this flaw as a key argument in a class-action lawsuit. As Kitces puts it (emphasis his):

“Financial institutions face the risk that they will be sued in a class action lawsuit for failing to put their financial advisors through the training and education (e.g., professional designations) necessary to ensure that the advisor would even know what the ‘best’ advice for the client was in the first place!”

If courts were sympathetic to that argument, he concludes, things could get uncomfortable, and expensive, very quickly.

Granted, Kitces’s point could quickly become moot under a Donald Trump administration. Trump’s advisers and cabinet picks, including Secretary of Labor nominee Andy Puzder, have generally been outspoken about their desire to roll back financial regulations. Earlier this month, Rep. Joe Wilson (R, S.C.) introduced a bill to delay the implementation of the fiduciary rule, one that would likely get a sympathetic hearing from laissez faire GOP congressional leaders. But whether or not the rule survives, Kitces’s take highlights an important point: Just because an advisor isn’t trying to fleece you doesn’t mean he or she is qualified to help you.

Click here for more articles from Time Inc.’s Looking Forward series.

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