The Department of Labor announced Monday that it would reproprose its rule on the application of the fiduciary standard to retirement accounts. The announcement came after House Financial Services Committee ranking member Barney Frank sent a letter to the DOL last Thursday requesting that it withdraw and re-propose the rule. The DOL has received several letters from Congressman urging it to work with the Securities and Exchange Commission on its fiduciary rulemaking but until now, it had not responded.
“The decision to re-propose is in part a response to requests from the public, including members of Congress, that the agency allow an opportunity for more input on the rule,” the DOL wrote in its release.
“We have said all along that we will take the time to get this right to ensure that we provide the strongest possible protections to business owners and retirement savers in plans and IRAs,” said Employee Benefits Security Administration Assistant Secretary Phyllis C. Borzi. “Investment advisers shouldn't be able to steer retirees, workers, small businesses and others into investments that benefit the advisers at the expense of their clients. The consumer's retirement security must come first.”
The agency laid out in its release the areas of the proposed rule that it plans to revise, including “clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions.”
In addition, the agency plans to address concerns about “the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products.”
Opposition
The brokerage industry had been up in arms about the DOL rule, saying it conflicted with efforts on the part of the SEC under Dodd-Frank to conduct rulemaking on the fiduciary standard. Many firms had threatened to withdraw from the lucrative retirement industry all together if the DOL went ahead with its proposed rule on the fiduciary standard.
Last week at a hearing on the fiduciary standard and whether to shift oversight of investment advisers from the SEC to an SRO, consumer advocate Barbara Roper of the Consumer Federation of America said she believes the DOL fiduciary standard should be more like the SEC’s proposed standard.
“We have concerns about the DOL proposal,” she told legislators. “We think there is potential to resolve the difficulties. The DOL proposal should not stop the SEC proposal. Our concerns about the DOL proposal is that it doesn’t more closely resemble the SEC proposal. It has a huge sellers exemption in it. At the other end of the spectrum, the b/d firms are right that when you apply an absolute ERISA standard with no exceptions, the b/ds are going to exit that business.” She continued, “Not enough fee only planners are going to step in and provide those services. One of the key issues is how will they do the prohibitive transaction exemptions.”
In his letter, Frank wrote, “I agree that ERISA rules may need to be updated. But it is important to do this in a way that does not have adverse effects on the choices available to consumers, muncipalities, and pension plans among others.” He continued, “I strongly urge you to withdraw and re-propose your rule, in coordination with both the Securities and Exchange Commission and the Commodity Futures Trading Commission. Making another attempt to address the many issues that have been raised will ultimately improve the rule and ease implementation for all concerned.”
The Financial Services Institute issued a statement expressing its support of Frank’s letter. “It has been clear for some time that the Department of Labor is refusing to recognize the serious problems with its fiduciary rule proposal,” said FSI President & CEO Dale E. Brown. “Ranking Member Frank’s letter adds to the already strong bipartisan consensus of roughly 100 Democratic and Republican members of the House and Senate who have sent letters to the Department of Labor urging them to slow down and study the impact before moving this rule forward. Unfortunately, the Department has not responded to these concerns, and has refused to even acknowledge the need for more study.
