WASHINGTON -- After five years of developing a controversial proposal to extend fiduciary responsibilities to advisors working with retirement plans and plan participants, the Department of Labor is telling the industry that it remains open to tweaking the rule before it is finalized, and intends to closely review the comments submitted by interested parties.
Judith Mares, deputy assistant secretary at the DoL's Employee Benefit Security Administration, addressed the issue here at a conference hosted by the Insured Retirement Institute, a group that has been critical of the fiduciary proposal.
Mares took pains to assure the audience that Labor is committed to a collaborative process as it moves toward finalizing the regulation.
"One of the things that I want to make clear is that we're in the middle of a comment period, and what I've learned about being in the middle of the comment period -- its sole purpose is to receive comments, to judge whether or not we should make some changes between your proposal and your final rule," Mares says. "So I don't want anything I say to infer that we've made up our minds, because we haven't."
Mares acknowledges that the Labor Department got an earful about the rule from concerned parties, including industry representatives, investor advocates and others who have expressed a diversity of views on the rule. But one common thread running through those comments, she says, is that the starting point of a best-interest standard for advisors working in the retirement space is not especially controversial.
"We have heard that that single goal we're trying to get at, which is acting in your customers' best interest, is a good goal, and people applaud that goal and endorse that as the standard," she says. "What we've heard comments about is the way in which we're proposing to go about that."
And in those details any high-level consensus quickly dissolves.
Comments have already begun to flow into the DoL on its fiduciary proposal, which will be the subject of a public hearing in August. Some of the big trade groups have yet to weigh in, but have been working in other channels to stoke opposition to the rule.
The Financial Services Institute, for example, has been shopping around a document on Capitol Hill outlining its opposition to the proposal, arguing, among other points, that the primary exemption under the rule, requiring fiduciary advisors to enter into a contract with their clients, is overly prescriptive and "too narrow to work." Moreover, FSI warns that the rules would create an onerous compliance requirement that could prompt brokers and advisors to abandon the small-business and small-investor market segments, and that the best-interest conflict exemption will make it harder for advisors to retain current clients.
Meanwhile, the Financial Services Roundtable has been urging regulators to coordinate more closely, noting that many different federal authorities have some jurisdiction over the retirement space, and arguing for a simplified approach that would codify a best-interest standard without imposing dramatic new compliance burdens and exposing financial advisors to additional liability.
"Simple and clear changes can -- and should -- be made to ensure investment advice is in a clients best interest," FSR CEO Tim Pawlenty and Robert Reynolds, CEO of Great-West Financial and Putnam Investments, write in a recent op-ed in The Hill. "Advisors who violate the best interest standard should be held fully accountable. But we dont need a bull rush of fresh red tape."
Mares says she is receptive to industry concerns about how the best-interest contract exemption would work, but insists that the exemption is broader and more easily implemented than the critics have characterized it.
"We've said there can be many ways to create an enforceable contract," she says.
She also notes that many parties have weighed in on the data-reporting obligations the rule would entail. Some industry groups, predictably, have criticized those provisions for the technical and compliance burden they would entail, while others would like to see them go further. Mares says that the department is anticipating that the comment process will be integral in determining where the final rules are set.
"We've heard all sides of the data requirements -- whether it's the point-of-sale disclosure, an annual disclosure, website disclosure, data retention," she says. "We've heard from many sides that many of those components are unworkable, they're onerous. And yet we've heard from other [parties who say] 'We would like more data retained so that we can do more analysis in the future.' So I think that hearing in comment letters the cost of providing data and the essential nature of that data in terms of guiding us to a good final rule will be valuable."
But those who hope to scuttle the proposal altogether have another hope -- that the sheer volume of comments expected to roll in could be so heavy that the department won't be able to produce a final rule ahead of the next administration, which could very well take action to block the regulations from taking effect.
"It is a question as to whether or not DoL will be able to get something out in time, before the next administration can put a hold on it for review," says Michael Del Conte, an associate with the Groom Law Group and a former Labor Department official. "Most of my colleagues believe that this is going to happen, but I'm a little less sanguine. There's a lot of momentum, but that's a lot of paper to move in a fairly short period of time."
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