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Advisors May Still Lose Right to Earn Commissions on IRA Advice

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Two years ago, the Department of Labor (DOL) issued a proposal that seemed simple enough on its surface: it would redefine the term “fiduciary” in regards to company-sponsored retirement plans and IRAs. We realized immediately, however, that the DOL’s proposal could have seismic implications for independent financial advisors and the hard-working clients they serve. 

By redefining the term “fiduciary,” the DOL’s proposal would suddenly hold broker-dealers who work with company-sponsored retirement plans and IRAs to a different standard of oversight, one that would not be aligned with Main Street American investors’ needs. This move would eliminate commissions as a source of broker-dealer compensation for such accounts, potentially pricing out the majority of American IRA holders from affordable financial advice.

Under the DOL proposal, many independent financial advisors might be forced to exit the IRA and company-sponsored retirement plan businesses, rather than face the onerous costs of restructuring their service offerings to suit the new rule. The result: potentially millions of Main Street investors could be left without access to affordable and objective investment advice just as more and more of them are facing imminent retirement and a difficult economy. 

FSI’s response to the DOL proposal was rapid and decisive. As I said then, “As it stands now, this proposal is a lose-lose, both for advisors and, most importantly, for consumers.” 

Drawing on its leaders’ decades of advocacy experience and the strength of its membership, FSI quickly formulated a response plan and began to execute on it. In February 2011, FSI sent a comment letter to the DOL regarding the proposed rule, strongly urging the Department to perform a more thoughtful cost-benefit analysis before proceeding. The comment letter also laid out the unforeseen consequences the proposal could have for consumers. 

In the following months, FSI issued a call to action to its members across the country, briefing them on the issue and urging them to contact the White House and their representatives in Congress. The response was overwhelming: by August, over 5,000 personalized, written letters from concerned financial advisors had poured in to the White House, coordinated by FSI. 

That summer, senior FSI leaders met with Gene Sperling, President Obama’s Assistant for Economic Policy and Director of the National Economic Council, to discuss their concerns. Commenting on FSI’s focused efforts, Brown said that the organization had sent “a clear indication to the White House of the gravity of this situation.” 

FSI’s efforts to protect independent financial advisors and their clients paid off: in September 2011, facing enormous opposition from the White House and members of both parties in Congress, the DOL withdrew its fiduciary proposal for further review. 

The Next Round Is Coming Up

The fight, however, continues. FSI expects DOL to issue a re-worked version of the fiduciary proposal later in late Q1 or early Q2, and concerns about its potential impact remain very real. Early indications are that the Department will include IRAs again in its re-proposal, and may even include new provisions that would make the rule more onerous than before. 

FSI is now more engaged than ever in shaping the outcome of this regulation. At the last FSI Advocacy Summit, 150 FSI members conducted 256 meetings with Congressional representatives from both parties, with the DOL fiduciary issue as one of the core discussion points. At the urging of FSI members during these meetings, more than 30 House Democrats and 55 House Republicans issued separate letters to now-outgoing DOL Secretary Hilda Solis, urging her not to move forward without accounting for the damage the new regulation could cause to Main Street investors. 

FSI has been working diligently with DOL on this issue, and will continue to advocate for a healthier, more business-friendly regulatory and legislative environment where independent financial advisors and their clients can thrive.