Advocates are gaining momentum in the already contentious debate over a new fiduciary standard, while opponents warn the rule-making process needs to slow down.
The Labor Department is the latest to weigh in, unveiling details of its own proposed rule that would impose a fiduciary standard on thousands of brokers and advisors providing retirement investment advice.
"Given everything the industry has put into trying to ensure that this day never came, just the fact that they are releasing the rule for public comment seems like a huge victory," says Barbara Roper, director of investor protection at Consumer Federation of America.
The DoL's announcement also comes as the SEC is working on its own fiduciary rule.
"I'm hopeful that the momentum and the public awareness, the fact that we are dealing with the issue, will be an impetus for the SEC to get its rule making underway," says Sheryl Garrett, founder of The Garrett Planning Network.
She welcomes the DoL's move, saying that the current suitability standard was insufficient: "I don't think that's good enough."
LENGTHY BATTLES AHEAD
This latest proposal will only be grist for further debate about a fiduciary standard as the proposal goes up for public comment, says Jim Allen, head of Americas capital markets policy for the CFA Institute.
It will be a prolonged process, as investors, firms and other groups weigh in, Allen says. "There still may be some lag time in the implementation of this rule, and maybe some changes to the rule as things go along."
The definition of what is considered action in the best interest of the client will be up for intense discussion, Allen says.
"In what circumstances does it apply? There are a lot of issues that come into play. There are plenty of danger points in it."
"Regulation is a barrier to entry," Allen adds. "There is a concern this could add some additional costs and paperwork in the process. We'll see whether this is a feather or an anvil on the backs of smaller advisor firms."
Many in the industry have been critical of the DoL's efforts, echoing similar criticism and saying that the department's proposed fiduciary standard could limit investor choice. Earlier this year Raymond James CEO Paul Reilly rallied advisors to fight back by getting engaged in the policy making process.
Several industry leaders spoke against the proposal at a recent SIFMA conference in Chicago, and, following the DoL's announcement, SIFMA, which has been critical of the department, said it would weigh in during the comment period after a thorough review of the plan.
An overhaul of the standard, which the DoL can do under the authority of the 1974 Employee Retirement Income Security Act, is long overdue, says Jeff Zients, director of the National Economic Council.
"We all know that for some special interests, that the only good rule is no rule at all," Zients adds.
AN INDUSTRY DIVDED
Garrett and other advocates say a significant lobbying effort by the industry is underway to stem the fiduciary tide. But some wealth management leaders are taking a less confrontational tack. Merrill Lynch's John Thiel told attendees at that SIFMA conference that he anticipated regulators listening to the industry, arguing that "we should work in a constructive and collaborative manner that's in the best interests of clients."
In an exclusive interview with Financial Planning just prior to the DoL's announcement, Mark Casady, chairman and CEO of LPL Financial voices support for the proposal.
"We believe transparency is a good thing, and that consumers should understand why and what they're being charged. We want them to be more informed rather than less," he says. "At its core, the DoL is trying to provide transparency around the choices of investments that consumers make - that's a good thing in our view."
TOO QUICK OR TOO SLOW?
Opponents have been united in saying that the rule-making process has been hasty. "The issues here are terribly complex that we at CFA we've been dealing with [for years]," says Allen. "Five years in some sense isn't that long."
David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, shares similar criticism.
"Rushing this rule through the [Office of Management and Budget] review process prevents a thorough analysis that takes into consideration all concerns that have been expressed," Hirschmann says. "For example, it risks potential conflicts with regulations under the Investment Advisor Act and the Securities and Exchange Act, while unnecessarily duplicating regulatory oversight for broker-dealers."
In a conference call with reporters, Secretary of Labor Thomas Perez rejected criticism that the rule making process has been rushed, saying that the proposal has been in the works for several years. He also noted a previous 2010 proposal and the informal outreach his department has conducted over the past year, as well as criticism from advocates that regulators have been too slow in crafting a new rule.
"I think it strains credibility that there is somehow any rush in the process," he says.
For her part, Garrett also says that the timing is right.
"It's never the wrong time to do the right thing," she says. "I believe a fiduciary standard for all advisors rendering advice should be required by law to put their clients first. That's what's best for the clients and it's what is best for society."
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