More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- 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’s redraft of its fiduciary rule could be released by next April or May, said Brian Graff, executive director of the American Society of Pension Professionals and Actuaries as well as the National Association of Plan Advisors, on Tuesday.
At Charles Schwab’s IMPACT conference in Washington, Graff discussed what he said were the two biggest issues for retirement plan advisors to watch next year: the DOL’s fiduciary reproposal, and the trend of states “getting more involved with retirement issues,” which Graff said makes him “nervous.”
As Phyllis Borzi, assistant secretary of labor for DOL’s Employee Benefits Security Administration, said Oct. 29 at ASPPA’s annual conference, EBSA is coming “very close” to finishing its work on the reproposed rule.
Graff pointed to the problems he sees with the DOL’s fiduciary reproposal. If IRAs are included — Borzi has said they are — the DOL could run into enforcement difficulties. If the definition of fiduciary advice is the same for retirement plans and IRAs, the DOL “will not have the authority to enforce” the IRA portion, Graff said, as IRAs are under the jurisdiction of the Internal Revenue Service. The IRS, he said, has six employees devoted to IRAs.
“Here’s my concern with what Borzi is trying to do: It’s not so much the notion of a fiduciary standard … but if there’s no enforcement teeth, you could be creating a Wild West.”
A fiduciary standard's “practical impact” on the marketplace will be “how do you get paid, and will certain forms of compensation no longer be allowed,” he said.
“It’s not so much that more people will be fiduciaries,” under the proposal, Graff said, “but how they will get paid.” From an enforcement standpoint, DOL will get at the fiduciary problem “by limiting forms of compensation.”
The potential limit on compensation will affect the small-business market, Graff said, in that if a small business “doesn’t have a [401(k)] savings plan, who’s going to sell them a plan if they won’t get paid?” The small-business problem “is a vexing problem in the context of getting paid under a fiduciary standard.”
As to the Securities and Exchange Commission’s rule to put brokers under a fiduciary mandate, Graff warned that the agency may indeed create “two kinds” of fiduciaries. Dodd-Frank “explicitly” says that if the SEC develops a uniform fiduciary standard the agency “cannot preclude the advisor from getting commission-based compensation and cannot require the advisor to monitor investments,” Graff told attendees.
David Tittsworth, executive director of the Investment Adviser Association in Washington, told ThinkAdvisor that two fiduciary standards could indeed be a “possible” outcome.
While the law “does not necessarily mean that there will be two different fiduciary standards — the existing fiduciary standard under the Advisers Act and a fiduciary standard for brokers that provide investment advice to retail customers,” that result is “possible.”
IAA, Tittsworth said, “has warned the SEC that establishing different fiduciary standards would not be in the interests of clients. Obviously, it would exacerbate the current confusion that exists about differences between brokers and advisors and the standards that govern their activities.”
As to states getting more involved in retirement planning issues, Graff says about 12 to 13 states are “seriously” looking at the issue of not enough workers having a retirement plan at work. He said that some states are mulling adopting “mandates,” which require, for instance, as in the case of California, that “any employer with five employees” provide a payroll deducted IRA.
Graff said that state-run plans can be problematic in that “they usually don’t have competitive prices,” and stressed “the important role that the private sector needs to play here to make sure that products are innovative.”
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