Phyllis Borzi and Mary Jo White are two tough ladies with two tough jobs.
Both are regulators responsible for crafting two contentious fiduciary rules—rules that advisors and broker-dealers say could fundamentally alter the way they do business.
Despite severe pushback, Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, has been adamant for years that she’s determined to get a rule passed that amends the definition of fiduciary under the Employee Retirement Income Security Act.
While relatively new to her job, Securities and Exchange Commission Chairwoman Mary Jo White is now responsible for trying to do what her predecessor couldn’t: get the Commission to pass a rule to put brokers under a fiduciary mandate.
White told members of the Senate Banking Committee in late July that the SEC was “focused” on completing a fiduciary duty rule proposal and that it was “important” for her “to get to wherever we are going on that [rulemaking] as quickly as we can.” Getting a rule proposal out this year, however, is unlikely, as the agency has new cost/benefit data to digest, and two new SEC commissioners recently came on board.
But former SEC Chairman Harvey Pitt believes White, whom he calls “incredibly bright, very able” and someone who knows how “to bring order out of chaos,” will use her natural ability to lead to help resolve the many contentious issues that surround the adoption of a fiduciary standards rule. White will “consider the issues from all sides and work to develop a consensus that achieves the Commission’s policy objectives while taking account of reasonable industry concerns.”
EBSA’s regulatory agenda had said the DOL’s fiduciary reproposed rule would come out in October. However, Borzi said in mid-September that EBSA would miss that deadline because EBSA was “not finished” with the revamped rule that it pulled.
“The point of working on the reproposal is to get it right,” Borzi told attendees at the Financial Services Institute’s Advisor Summit, held in Washington in mid-September. “We are trying very hard to make sure we’ve crossed all the T’s and dotted all the I’s. We shared many of the concerns that people have raised in the public comment process, and we want to make sure we’ve given it our best shot.”
Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, says that Borzi has “been an activist assistant secretary.” Her administration has brought “a period of great change,” Reish says, “coming after years of moderate assistant secretaries who made measured steps forward.”
While “we don’t know where the fiduciary advice proposal will end up and what the long term impact will be,” Reish adds, “based on public comments, Phyllis clearly believes that plan consultants and advisors have many conflicts of interest and, at least sometimes, succumb to those conflicts. The anticipated fiduciary proposal will almost certainly reflect those concerns.”
But DOL’s fiduciary reproposal could also be held up once it gets to the Office of Management and Budget.
OMB has “a minimum of 90 days” to review DOL’s fiduciary plan, Borzi said at the FSI event. “OMB is the reviewer that keeps us honest,” she said, making sure that DOL’s “regulation has been properly coordinated with the other agencies that have an interest in this issue.”
A group of 10 Democratic senators urged OMB in August to carefully review the DOL’s fiduciary reproposal to ensure that it doesn’t “directly conflict” with or “upend” the SEC’s work on its fiduciary rule.
Borzi told Investment Advisor after her comments that she could not say when a reproposal would be sent to OMB.
Some industry officials were surprised by Borzi’s announcement that there would be a further delay, as she had said in early June that a reproposed fiduciary rule will likely be released a “couple of months after July.”
Reish voiced his disappointment with the delay. “It seems like we have been waiting for a long time,” he says. “It would be helpful to see the DOL’s proposal [because] right now, we are in a holding pattern on advising clients about how to plan for the future.”
While both Borzi and White have said the agencies are collaborating on their fiduciary rules, industry executives and members of Congress have expressed their doubts.
Brad Campbell, former head of EBSA who’s now a counsel in Drinker Biddle & Reath’s Washington office, told Investment Advisor after Borzi made her mid-September comments that as the bipartisan Congressional opposition to the original proposal that was released in 2010 demonstrates, “DOL has to make substantive changes if it intends to proceed,” and the Department “also needs to actually coordinate with, not just talk to, its counterparts at the SEC.”
Indeed, after being asked by FSI President and CEO Dale Brown whether the reproposal would include IRAs—which advisors have complained will cause them to lose their ability to earn commissions on IRA advice—Borzi asserted: “We will cover them.”
Riesh added that while the regulation has attracted most of the attention, “the exemptions will determine the intensity of the upcoming fight on this politically charged issue.” If the exemptions “are fairly broad—for example, on advice for IRAs—the opposition from the private sector may be reduced.”
There’s no doubt that the decisions made by both Borzi and White over the coming years will play a crucial role in advisors’ lives.