More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- 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.
The Department of Labor plans to repropose its controversial rule amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) “shortly after the first of the year,” Phyllis Borzi, assistant secretary for DOL’s Employee Benefits Security Administration (EBSA), told a group of retirement plan specialists on Tuesday.
The DOL's timeline falls close to when the Securities and Exchange Commission (SEC) is expected to release its fiduciary proposal.
Borzi (left), speaking at the American Society of Pension Professionals and Actuaries (ASPPA) annual conference outside Washington, said that while the rule proposal will include “the same structure,” the EBSA is working hard on “making changes” to certain aspects of the proposal as well as crafting a “more robust” economic analysis of the rule.
Borzi also stressed that the reproposal will apply to both 401(k)s and IRAs, and made clear that critics who’ve claimed the DOL has no jurisdiction over IRAs are “simply incorrect.” She cited an Executive Reorganization of government agencies under the Jimmy Carter administration that gave DOL jurisdiction over IRAs.
While Borzi spent quite a bit of her time talking about the release on Monday of the DOL’s long awaited final regulation on investment advice, she said promulgation of EBSA’s plan level fee disclosure rule 408(b)2 should be published “imminently.” EBSA, she said, is awaiting final approval under the Paperwork Reduction Act before it can promulgate the rule.
One area of the fiduciary reproposal that Borzi said EBSA is “working very hard on” is the “seller's exception.” Industry groups have been saying EBSA needs “to broaden” this while consumer groups have been saying “we need to get rid of it,” particularly applying it to IRAs, Borzi said. Drafting of this sellers exception, she continued, “is the difficult part,” because the question is: “What is it you are selling?" While selling a product is not a “fiduciary act,” she said, “if you are selling advice wrapped around a product or advice alone,” that falls under the fiduciary scope.
Another part of the original proposal that caused a stir was EBSA’s inclusion of rollovers. While not
Brian Graff, executive director and CEO of ASPPA, told AdvisorOne after Borzi spoke on the panel he was moderating, that inclusion of rollovers in the fiduciary proposal “raises a lot of concerns.” It could have a “chilling effect,” he said, if EBSA comes out with a fiduciary rule that “makes it harder for providers to talk to participants about rollovers, because that could cause leakage” of assets out of plans.
Fred Reish, partner and chair of the Financial Services ERISA Team at Drinker Biddle & Reath in Los Angeles, said during a session he conducted at the ASPPA event on Monday that it’s hard to tell if DOL “is going to back off of this [rollover issue] or expand it to include broker-dealers. This could emerge as a big issue going forward.”
EBSA is also contemplating issuing a prohibited transaction around revenue sharing, Borzi said. “We do not have exemptions for these third-party payments,” she said.
The list of prohibited transaction exemptions under the fiduciary proposal will be released in tandem with the rule’s reproposal, Borzi said, so the public can comment on both.