More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
The Department of Labor’s Employee Benefits Security Administration says it is “disappointed” that industry trade groups could not provide more data by the Feb. 24 deadline to fulfill the department’s request regarding what impact the conflicts of interest faced by brokers and advisors who advise on IRAs have on IRA investors.
EBSA also says it is “bewildered” that the data underlying the Oliver Wyman report stating that applying a fiduciary standard to IRA recommendations is costly will not be “forthcoming” to EBSA to help in its cost/benefit analysis.
An EBSA spokesman told AdvisorOne on Tuesday that while EBSA is “disappointed that more data was not available from the industry sources,” on IRAs, and the groups “have not been able to provide many of the suggested data elements, the department appreciates the information that has been sent, and is working diligently to review and assess it.”
When EBSA released its original rule proposal on fiduciary duty under ERISA in October 2010, EBSA received comments suggesting that it had not adequately demonstrated or quantified the harm that can arise when investment advisors’ interests conflict with those of the IRA owners they advise.
In response to the comments, EBSA began examining a wide array of evidence and developing a robust economic analysis, and sent out two data requests: one issued on Dec. 16 for the data underlying the Oliver Wyman report; and the second was a request from EBSA’s Office of Policy Research on Dec. 15 that industry trade groups voluntarily assist EBSA in its expanded “regulatory impact analysis” to assess the impact of the department’s reproposed fiduciary rule on ERISA plans and IRAs. That data request was due to EBSA by Feb. 24.
Dale Brown (left), president of the Financial Services Institute, which has been opposed to the DOL’s redefinition of fiduciary, told DOL in a Feb. 24 letter that the assistance FSI is “able to provide is quite limited.”
FSI, Brown said, “does not itself have or maintain any account-level IRA data. As a member benefit, FSI conducts annual benchmarking studies focused on the management and operation of independent broker-dealer firms; those surveys do not solicit or collect data with respect to the characteristics and performance of investor accounts in the IRA or any other market.”
Other industry trade groups that were asked to provide data were that National Association of Insurance and Financial Advisors, the Financial Services Roundtable, the Securities Industry and Financial Markets Association, the American Council of Life Insurers, the Insured Retirement Institute and the American Bankers Association.
EBSA’s regulatory agenda for 2012 says its reproposed rule amending the definition of fiduciary under the Employee Retirement Income Security Act is projected to be released in May.
As to the data underlying the Oliver Wyman study, 12 financial firms commissioned a study by Oliver Wyman on the effects of DOL’s proposed fiduciary definition change on IRAs. The data underlying the study “has been collected,” says Barbara Roper, director of investor protection for the Consumer Federation of America, and “it ought to be readily available.”
But the DOL spokesman told AdvisorOne that DOL has not received the underlying data and has been told “that it is not forthcoming.” DOL, the spokesman said, finds “this response somewhat bewildering since this data was provided to Oliver Wyman to reach their conclusions.”
Roper with CFA says that the firms “need to provide the data underlying the stud[y] if they want their conclusions to be taken seriously.” Says Roper: “Frankly, if they really were confident that the data supports the conclusions, I think they’d be eager to get that data into regulators’ hands.”