Brad Campbell, former head of the Department of Labor’s Employee Benefits Security Administration (EBSA), said Wednesday that he had been urging the DOL to “re-propose” its regulation amending the definition of fiduciary under the Employee Retirement Security Act (ERISA) as the proposed rule is unclear about who is a fiduciary.
However, the current head of EBSA, Phyllis Borzi (left), told AdvisorOne in an email message the same day that "with the benefit of the extensive comments that we have received to date, we believe we should be able to complete the regulation without re-proposal." Borzi plans to issue a final rule by year-end.
Campbell, who’s now counsel with the law firm Schiff Hardin in Washington, was speaking at an event in Washington sponsored by The Hartford called Your Pension at Risk: What You Need to Know. He said that the DOL’s proposed fiduciary rule “would effectively make any advisor giving advice to a plan an ERISA fiduciary.”
In a separate interview with AdvisorOne, Campbell said that if DOL failed to re-propose its fiduciary proposal, it would likely face “legal challenges.” A re-proposal of the rule is “necessary to understand what DOL really wants to do, to narrow down the problems,” he continued. “If DOL doesn’t re-propose [the rule], they give people who are going to challenge this regulation a stronger argument about a flawed process.”
DOL’s “proposed regulation is so broad,” Campbell said in the interview, and includes, for instance, applying the fiduciary rule to IRAs. “No where in the [proposed rule’s] economic analysis does it mention the impact the [fiduciary] rule would have on the IRA marketplace—[which holds] over $4 trillion of capital.” Adds Campbell: “The sheer scope of what’s going on [in the fiduciary proposal] has cause people to raise concerns.”
Campbell also said that once DOL’s fiduciary rule is finalized, the agency is planning on instituting a “long effective date” so that it can deal with problems that crop up during implementation. Having a long effective date “is a solution that works well for DOL, but it doesn’t work well for the regulated community, either plans or service providers,” Campbell said, because it creates a “game of regulatory chicken.”
Borzi said in her email that DOL is still reviewing the comments it received during the initial comment period on the proposed rule, and continues to hear from "interested parties." So far, she said, "the issues raised are primarily ones we can address through the normal process of making drafting changes to the proposed rule and exercising our broad statutory prohibited transaction exemption authority."
Borzi has said that EBSA has been “working closely” with the Securities and Exchange Commission (SEC) as the EBSA develops its fiduciary regulation, and that EBSA and the SEC’s goal is to “harmonize both [agencies’] statutes” regarding who is a fiduciary when giving investment advice. But Campbell said that he’s “very concerned that how the ‘big picture’ [regarding fiduciary duty] fits together is not being coordinated” at the two regulatory agencies.
For instance, he said that if the DOL applies its fiduciary rule to IRAs, “broker-dealers who are selling IRAs are going to have to change the way they operate and the way they get paid in connection with those IRAs.” Given the fundamental difference between IRAs and 401(k)s, Campbell continued, there is a valid question in: “Is DOL the right entity to regulate that [IRA] activity, or should this policy really be coming out of Treasury or the SEC?”