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Regulation and Compliance > Federal Regulation > DOL

IRI, SIFMA and FSR Rip Fiduciary Standard

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Three financial services industry trade groups are signaling to the Department of Labor (DOL) that they will fight tooth-and-nail to sustain the current exemption of the sale of retirement investment products from a fiduciary standard.

The letter was signed by officials of the Insured Retirement Institute (IRI), the Financial Services Roundtable (FSR) and the Securities Industry and Financial Markets Association (SIFMA).

It implied that there would be dire economic consequences for both the industry and investors if a fiduciary standard was imposed on the sale of investment products in retirement accounts under the Employee Retirement Income Security Act (ERISA).

The National Association of Insurance and Financial Advisors (NAIFA) is also part of the industry coalition involved with this issue.

Robert Miller, NAIFA president, said in an interview with the National Underwriter earlier this week that NAIFA members played a key role in the successful effort last September to have the DOL withdraw the original rule.

He said NAIFA members did so by lobbying members of Congress about the potential harmful effects of imposing a fiduciary standard on sale of retirement products.

This was before the IRI, SIFMA and the FSR sent the latest letter.

Miller said NAIFA is girding up to renew its opposition because DOL officials have indicated that a revised rule would likely still contain a provision imposing a higher sales standard on retirement products sold in accounts regulated by ERISA.

In mid-February, NAIFA sent a similar letter to the DOL indicating that it could not provide the data requested by DOL because of privacy concerns voiced by its members.

In comments today, Miller rejected complaints from consumer groups that industry trade groups were not providing the data as part of their effort to thwart the DOL’s efforts to impose the fiduciary standard on sale of investment products.

“We have been forthcoming with all of the data we have,” Miller said.

He said that in NAIFA’s case, “the LIMRA survey we conducted in late 2010 provides a wealth of information, including  41 percent of our members who deal in securities are ‘dual-registered’ as both registered representatives and as investment advisers under the Investment Advisers Act of 1940.”

He said the LIMRRA survey also found that, on average, 77 percent of a NAIFA members’ income comes from commissions, 8 percent from salary, 11 percent from assets under management and/or planning fees, and only 4 percent from bonuses and reimbursements.

“We put this and other findings on our website, summarized it in our communications with the Department of Labor, and directed them to the online source in our formal comments submitted last April.”

In the most recent response, the IRI, SIFMA and the FSR warned that if the DOL imposes the fiduciary standard on ERISA-regulated products in the next version of its proposed rule and it becomes a final rule, the result “will be limited retirement planning help, as well as the guidance necessary to educate [investors] about the tax consequences of taking a withdrawal, loan or hardship distribution.”

It is unclear when the DOL will come out with its revised proposal.

The IRI, SIFMA and FSR letter said that by imposing such a standard, “Even simple discussions regarding saving in the appropriate retirement plan or helping clients make pre-tax or post-tax distribution decisions will become cost prohibitive or obsolete.

“These are education efforts undertaken by many advisors which could turn them into fiduciaries under the Department’s proposal which will then limit the availability of these services,” the letter said.

“This will impact individual retirement savings and needs to be assessed by the DOL to determine the cost of the proposal,” the letter said.

“Unfortunately we do not see any evidence in the request that the DOL sent to us that the Department is even remotely considering these costs,” the letter said. “Of course, if the Department already understands and concedes these costs, perhaps it has determined that no further data is necessary.”

The letter added that, in responding to the DOL’s request for data, it needs to generate an economic impact study of such a standard, the three trade groups said that, “Our members are extremely concerned that the Department is neither looking for the ‘right’ type of data to complete an appropriate regulatory impact analysis, nor do we believe that if it were to receive all of the data it has requested, it could analyze it in a manner that controls for outside variables.” 

The letter also says that the trade groups believe “the data requested will be of little use to the Department” in justifying the DOL’s stated goal of finding that a fiduciary standard is necessary to protect consumers when purchasing retirement investment products.

Moreover, the letter says, “The request does not differentiate between non-fiduciary advice and fiduciary advice, raising the question of accurate comparisons against a ‘control group’ population.”

Amongst other issues, the trade groups argue that the data requested would also not take into account the situation where an investor has multiple account types, one or more of which may be used for more aggressive and riskier investing.”


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