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October 04, 2011 at 01:10 PM
A day after Phyllis Borzi (left), head of the Department of Labor’s Employee Benefits Security Administration (EBSA), told AdvisorOne that the DOL’s reproposed rule on fiduciary would be applied to IRAs, EBSA’s deputy assistant secretary said that EBSA was attempting to mold exemptions to the rule around revenue sharing and principal transactions. Those are two areas advisors said they would not be able to receive commissions if a fiduciary duty is applied to IRAs.
Advisors are asking EBSA if some exemptive relief can be given to principal trades and revenue sharing when dealing with IRAs under a fiduciary standard, Michael Davis, deputy assistant secretary at EBSA, told attendees at the Financial Services Institute’s (FSI) 7th annual advocacy summit in Washington on Tuesday. Davis said EBSA has had several meetings regarding how to craft such exemptions.
Revenue sharing, he said, refers to third-party payments coming from sales of a product, and advisors have complained to EBSA that if there isn’t an exemption for revenue sharing arrangements then “we’d have to move [IRA holders] into a fee-based model. This is the problem that people are citing to us,” Davis said.
The standard practice at DOL when issuing an exemption, Davis said, is opening it up for a comment period, just as is done with a proposed rule. The idea, he said, “is to release the exemptions at the same time as the reproposed [fiduciary] rule next year.”
As Borzi stated at an industry conference earlier this year, since the mid-1980s, the EBSA has had class exemptions for brokers receiving commissions on such “run of the mill” products as securities, annuities and bank products—but not for hedge funds or private equity. “We are carefully examining the exemptions and if we need to tweak them, we’re going to do it,” she said.
