More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Phyllis Borzi, head of the Department of Labor’s Employee Benefits Security Administration (EBSA), fought back on Tuesday against criticisms EBSA has received regarding its controversial regulation amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA).
At the Insured Retirement Institute’s (IRI) regulatory conference in Washington, Borzi (left) provided clarity on three areas that she said have drawn significant criticism under the proposed regulation: IRAs, broker commissions and EBSA’s collaboration with other agencies, like the Securities and Exchange Commission (SEC).
Brad Campbell, former head of EBSA, who’s now counsel with the law firm Schiff Hardin in Washington, is just one industry official that is critical of applying the fiduciary rule to IRAs. In a recent interview with AdvisorOne, Campbell said that “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.”
Campbell went on say that given the fundamental difference between IRAs and 401(k)s, 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?”
But Borzi said Tuesday that ERISA created IRAs. Borzi went on to say that there has been a “seismic shift” of boomers’ money from 401(k)s to IRAs, and that “the level of protection in the IRA marketplace for people against financial conflicts of interest is of concern.” This lack of protection, she said, “is one of the main reasons” EBSA has included IRAs in its fiduciary rule proposal.
Borzi said she is “mystified” by critics who say if the proposed rule were finalized in its current form brokers would be forced out of the IRA marketplace “because they couldn’t get commissions.” Since the mid-1980s, she said, the EBSA has had class exemptions for brokers receiving commissions on such “run of the mill” products as securities, annuities and bank products—but not for hedge funds or private equity. “We are carefully examining the exemptions and if we need to tweak them, we’re going to do it,” Borzi said.
Despite disparaging comments that EBSA is working "in a vacuum" and has been “paying no attention” to what’s been going on at the SEC, “let me assure you that we have been working” to ensure harmonization of both agencies’ rules. However, the SEC follows securities laws and will be assessing putting brokers under the same fiduciary mandate as advisors, while the EBSA has a statutory structure under ERISA that defines fiduciary, so “it’s highly unlikely that our rules would be identical, and Dodd-Frank doesn’t say they have to be,” she explained.
But Borzi said she could “promise” this: “that the rules will be harmonized so that compliance with one of the other laws [besides EBSA’s] will not cause a problem for you under ERISA.”