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July 10, 2012 at 08:55 AM
The Financial Services Institute (FSI) took umbrage at criticism in a letter today to Congress from the Department of Labor’s (DOL) key person overseeing the definition of a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) pertaining to data collection from industry sources.
The FSI’s President and CEO Dale E. Brown wrote to the chair and ranking members of the House Education & Workforce Committee that “such a sweeping request” for detailed data on every investment, every investor, and every recommendation in every context (IRAs, plans, and regular retail accounts) for the last 10 years, then returned in 30 days, “was impractical on its face.”
“Generating a decade’s worth of data in the manner requested by the Department is a difficult if not impossible task under any circumstances. However, the challenge associated with the Department’s request was increased by other important factors,” Brown said. These include regular year-end reporting and financial accounting obligations, the holiday season, and new compliance requirements with multiple regulators.
The letter was in response to the June 20 letter from DOL Assistant Secretary Phyllis Borzi to the same Congressmen, Education and Workforce Committee Chair John Kline, R-MN, and Ranking Member George Miller, D-CA, in which she expressed disappointment with not receiving many of the requested data elements from industry sources.
Voluntary data collection is often a huge undertaking for firms, fraught with many layers of concerns and stated barriers, from privacy to costs to future use, and with the fiduciary definition development, it is no different.
The DOL sent out two voluntary data requests in mid-December 2011 in order to develop an economic analysis of the fiduciary rule on workers, retirees and plan sponsors.
The first DOL data request was for underlying data supporting conclusions in an Oliver Wyman report cited for the record that purported to demonstrate that the costs of applying fiduciary rules to IRA advisors would be prohibitive.
The FSI, which has over 100 independent financial services firms and over 35,000 independent financial advisors, was not part of the Wyman study.
The other data request was broader, to financial services industry groups.
Borzi told the Congressmen she wrote to that the DOL was “disappointed not to receive many of the suggested data elements from the industry sources,” but noted it had met with industry representatives and asked them again to provide whatever information they deemed useful.
The FSI responded that it had contacted members to see if they could assist with the data request, but they were not able to for several reasons.
First, members, for business and regulatory reasons, do not maintain records of identifying or transactional information for the investors served by their independent financial advisors in the manner requested by the Department, the FSI letter stated.
Second, member firms do not have access to much of the data requested by the Department.
“For example, broker-dealers and investment advisers are not required to maintain records of some of the essential data points requested by the Department (e.g., whether the investor followed the recommendations or advice of the financial advisor). Neither broker-dealers nor investment advisors are required to maintain 10-year records of customer investment histories. Also, because financial advisors change broker-dealer affiliations from time-to-time, and investors often follow the advisors to their new firms, the history for a given IRA investor may be scattered across the records of more than one firm,” Brown’s letter on behalf of the FSI stated.
