Advisors are taking their objections to the Department of Labor’s (DOL) controversial rule amending the definition of fiduciary straight to the White House. More than 3,000 letters have poured into President Barack Obama in the last three weeks at the urging of the Financial Services Institute (FSI).
Chris Paulitz, FSI spokesman, told AdvisorOne that while FSI believes the White House “is paying attention” to advisors’ letters challenging the rule, in meetings with FSI over the past couple weeks, Phyilis Borzi (left), head of DOL's Employee Benefits Security Administration (EBSA), and others at DOL have “declined” to “slow down or pull back” from implementing the rule.
FSI has rallied its members to take their objections to President Barack Obama and his chief of staff, William Daley. The advisors have sent letters to Obama complaining that the DOL’s rule would threaten their ability to help hard-working, middle-class Americans plan for their retirement and would mean that they would no longer be able to provide unbiased, affordable advice to the individual retirement account (IRA) clients they currently serve.
Dale Brown (left), president of FSI, noted in a statement that “It has been clear for some time that the Department of Labor is refusing to recognize the serious problems with its fiduciary rule proposal.” That’s why FSI is “now taking our collective voice to the White House in an effort to preserve consumers’ access to affordable, independent retirement advice. We received an overwhelming response to our grassroots call to action, a clear indication to the White House of the gravity of this situation.”
Brown went on to note that on June 30, FSI and the Financial Services Roundtable met at the White House with Gene Sperling, assistant to the president for economic policy and director of the National Economic Council concerning the DOL’s proposal, which redefines who is a fiduciary under the Employee Retirement Income Security Act (ERISA).
Members of Congress from both sides of the aisle also told Borzi at a July 26 hearing held by the House Subcommittee on Health, Employment, Labor and Pensions to repropose the fiduciary proposal because it’s too broad and because the EBSA failed to examine all the costs associated with its proposal.
But Borzi stated during that same hearing that EBSA was not likely to repropose its fiduciary rule.
“We had lots of public comments” on the fiduciary proposal, she said at the hearing, which included “many of the issues we flagged for ourselves.” However, “nobody has suggested to us an alternative structure from the structure we’ve proposed” in EBSA’s fiduciary rule, she said.
She added: “They’ve had criticisms and comments and they’ve said, quite accurately–and because we knew we had to do it–to focus more on the cost” of the rule, “but I’m not quite there yet that the kinds of public comments that we’ve gotten have suggested such a fundamental alternative that we need to repropose it.”
Brad Campbell, former head of EBSA who’s now counsel with Schiff Hardin in Washington, told AdvisorOne in a recent interview that DOL should repropose the regulation “rather than rushing to a final rule in November.” He said that EBSA should heed lawmakers’ warning, “as the rule will rightly face legal challenge if [EBSA] continues on their current path.”
Brown of FSI says that the EBSA’s rulemaking process “should and must be suspended until a true impact assessment has been completed.”
As it stands now, he says, “This proposal is a lose-lose, both for advisors and more importantly, consumers. As we have said from our first engagement in this process several months ago, FSI stands ready to work with the DOL to specifically address concerns with the sale and servicing of retirement accounts. Withdrawal of the current proposal is the first step in that process and our members will continue to make their voices heard until that happens.”
But Borzi argued at a recent industry conference 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.
She went on to say that she’s “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.