Phyllis Borzi is once again feeling heat—this time from House Democrats—over her insistence on including individual retirement accounts (IRAs) in the Department of Labor’s reproposed fiduciary rule.
The latest complaint came in a late June letter from House Democrats to Borzi’s boss, Labor Secretary Hilda Solis. The lawmakers told Solis that their “core concern” is that the final proposal to redefine the term fiduciary in the context of providing investment advice under ERISA must ensure that “current access to investment information and education is at the very least preserved.”
In order to achieve this goal, the lawmakers said, it “is essential for the relevant federal agencies to coordinate their actions to arrive at a workable, consistent set of rules.” Unfortunately, the lawmakers voiced concerns that DOL may not be following this approach.
What’s more, the lawmakers said, DOL’s efforts and its data requests should be focused on what they called the “critical national need” for investment information and education. Instead, the department’s data requests from the industry on IRAs indicate that DOL may be headed in a direction that could “actually restrict access to investment education and information.”
The House Democrats, including Rep. Barney Frank, D-Mass., told Solis that they see a lack of “meaningful coordination” between the DOL’s Employee Benefits Security Administration (EBSA) and the SEC, despite the fact that the SEC is engaged in a “parallel” fiduciary project.
But Borzi said in a May interview with Investment Advisor that although there is a “primary commonality” between the SEC’s Dodd-Frank project to craft a rule to put brokers under a fiduciary mandate and EBSA’s fiduciary project, which is “to be more clear as to who is a fiduciary under [DOL and SEC’s] respective statutes,” it’s impossible for the two to come out with one fiduciary standard as the statutes they adhere to are “so very different.” She reiterated this in June at an industry conference by stating: “I will not promise anybody there will be a single fiduciary standard.” However, she added that compliance with EBSA’s fiduciary standard “won’t put you out of compliance with another [fiduciary] standard” such as the SEC’s.
She told me in the May interview that DOL and SEC over the years have had a strong record of collaboration but stressed “where it’s appropriate,” and that the SEC and DOL have been collaborating on the economic analysis as EBSA crafts its reproposal.
Blocking Advice for IRA Owners?
A huge sticking point has been EBSA’s data request from industry trade groups regarding what impact any conflicts of interest faced by brokers and advisors who advise on IRAs might have on IRA investors.
When EBSA released its original rule proposal on fiduciary duty under ERISA in October 2010, EBSA received comments suggesting that it had not adequately demonstrated or quantified the harm that can arise when investment advisors’ interests conflict with those of the IRA owners they advise.
I talked with three industry experts—Fred Reish, Brad Campbell and Kent Mason—about the lawmakers’ worries. They agreed that if IRAs are included in the redraft, as Borzi has insisted they will be, such account holders will be blocked from receiving advice.
Kent Mason, a partner at the law firm Davis & Harman—which represents the companies that participated in the Oliver Wyman study released to the DOL and the SEC in early April—reiterated the key point the study made: that 7 million IRAs “would be cut off from access to an investment professional” under EBSA’s proposal.
An Issue for Small Businesses