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It’s been in the works for years, but it may be 2016 before a new fiduciary rule is in effect, and even that’s a bit of a long shot.
“In 2016, we run into an election year,” which means it’s less likely that the political environment will allow regulators to push through one of the more wildly contentious changes in ERISA in years, Groom Law Group Chairman Steve Saxon said Monday at a presentation at the 2014 Society of Professional Asset-Managers and Record Keepers (SPARK) meeting.
Pressure from broker-dealers and others in the financial advice business has helped to stymie the Department of Labor’s efforts to push through changes in how to define a fiduciary.
“The DOL said it has been put off until January 2015. But after talking to a lot of folks, you have to wonder whether it’ll get done by then or even at all,” Saxon said.
Labor announced in late May that it will re-propose the rule in January 2015, well after November's midterm elections.
Labor Secretary Thomas Perez told a Senate Appropriations subcommittee in mid-April that the redrafting of the fiduciary proposal “has been slowed down at my direction significantly because we wanted to take a step back [to] listen and learn from everyone.”
“But if it takes six months to get through a comment period,” Saxon said Monday, “and then another six months of hearings, we’re running into an election year (in 2016) and the question is, do we want to do this in an election year?”
Labor Assistant Secretary Phyllis Borzi, who heads the Employee Benefits Security Administration, has been pushing for a new fiduciary standard since 2010, asserting that advisors who work on a commission model have "conflicts of interest" that inherently hurt consumers.
Among other issues in the DOL’s sights: arrangements known as revenue sharing, where mutual fund companies share a portion of their revenue with the brokerage firm selling the fund.
The Securities Industry and Financial Markets Association, known as Sifma, which represents large Wall Street firms, and the Financial Services Institute, which includes smaller independent advisers, have mounted fierce opposition to the change, saying the new rules would upset the way they get paid and make it difficult for them to serve smaller investors.
Consultancy Oliver Wyman estimated in 2011 that the rule could increase costs by 75% to 195%. And an April study commissioned by the industry and conducted by Quantria Strategies noted the rule would particularly hurt low-income African-Americans and Hispanics.
Saxon said the big question ahead for regulators may simply be whether any change in the law is necessary.
“A lot is in play,” he noted. “A lot of folks – brokers, insurance agents, bankers, RIAs – already believe they need to be fiduciaries to give advice in this space.”
For them, any change in the law may not make much difference. But it undoubtedly will for the nation’s tens of thousands of broker-dealers.
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