More On Legal & Compliancefrom The Advisor's Professional Library
- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
This is Phyllis Borzi’s third appearance on the IA 25. Read her extended profiles from 2011 and 2012 here. Click here to view the complete list and Special Report schedule for extended profiles for each of the 2013 IA 25 honorees.
Despite taking a drubbing from the industry over her insistence on issuing a rule to amend the definition of fiduciary under the Employee Retirement Income Security Act, Phyllis Borzi remains steadfast in her conviction to do so.
After pulling the original draft of the fiduciary rule last year, Borzi and her team at the Department of Labor’s Employee Benefits Security Administration are planning to release a re-draft of that rule in July.
In an email exchange with Investment Advisor in mid-April, Borzi said that while EBSA’s regulatory agenda states the rule proposal’s release will come then, “we’re going to take the time we need to get this right.”
Indeed, industry officials say to expect a firestorm of opposition once that reproposal is released. While Borzi has said the reproposed rule will be backed by a “substantial economic analysis,” some industry officials argue that extending the fiduciary rule to IRAs and rollovers—which Borzi has indicated will be part of the reproposal—will cause significant problems.
Borzi told IA that EBSA will, as with the original fiduciary proposal, seek public comment on the reproposal issued this summer. “We take into account comments on every proposal that we put out there,” she said. “I think that is evidenced in our behavior since we first proposed an end to conflicts of interest in the retirement marketplace in 2010.”
EBSA’s ultimate goal, Borzi said, “is to take everything we have learned [from the comments] and—acting in coordination with the SEC so that compliance with one regulatory regime doesn’t put you out of compliance with the other—issue a final rule that makes sense and protects the trillions of dollars in retirement savings that workers and families are counting on.”
In early April, the Government Accountability Office released a report on rollovers that foreshadows what DOL’s revised fiduciary rule may include in this area. In its report, the GAO urged the DOL and the Internal Revenue Service to take steps to ensure that plan-to-plan rollovers are more efficient, and to provide more information to plan participants about their distribution options when leaving an employer’s plan, as GAO said the current rollover process favors distributions to individual retirement accounts.
Borzi said that she and the DOL are “carefully reviewing the [GAO] report and certainly agree with much of what it has to say.” She also pointed out the fact that “GAO acknowledged that part of the solution to the issues in the rollover area includes completing the fiduciary rule.”
GAO specifically urged EBSA in its report to finalize its fiduciary proposal and “require plan service providers, when assisting participants with distribution options, to disclose any financial interests they may have in the outcome of those decisions in a clear, consistent and prominent manner; the conditions under which they are subject to any regulatory standards (such as ERISA fiduciary standards, SEC standards or others) and what those standards mean for the participant.”
Other priorities for EBSA “on the retirement side,” Borzi said, include working “toward a proposal on lifetime income options; a rule on annual funding notices for defined benefit plans; a final rule on disclosures for target-date funds, and amendments to our abandoned plan regulation.” Added Borzi: “There is also plenty going on in terms of implementing Affordable Care Act health insurance marketplaces.”