The new rules were supposed to come sooner. Instead, it looks as if it will take yet more work, including a mix of intense lobbying, delicate negotiations and some more nail-biting, before Americans enrolled in retirement plans can be assured the investment advice they receive is delivered with their best interest in mind.
That, at least, is what appears to be the case, based on votes in Congress last week and the latest word from regulators that they’re once more running behind in formulating new fiduciary standards.
The soonest that the Department of Labor is now expected to submit its new rules is September, not July, according to DOL Assistant Secretary Phyllis Borzi.
The DOL has been mulling changes to the definition of who is a fiduciary under the Employee Retirement Income Security Act since 2010.
The SEC, meanwhile, has been working on its plan for nearly three years, and Commissioner Elisse B. Walter recently said it wouldn’t be finished this year.
Consumers are often confused by the distinction between brokers and advisors, who work under different standards. To help, regulators believe a common fiduciary standard is needed for those who provide personalized investment advice to retail clients.
In its first proposed rewrite of the rules, the DOL stated that broker-dealers who work with IRA customers should be covered by the higher standards governing registered investment advisors — meaning that if someone is giving investors advice on which investments to make, they need to give it in the best interest of their clients, or disclose that they are receiving a commission to recommend certain investments.
Many in the brokerage industry had a tough time swallowing the proposed rules, particularly because the DOL didn’t include a cost-benefit analysis with its proposal. Brokerages said the rules would cause them to lose millions of accounts.
The newly revised revisions of the rules would be subject to public comment within 90 days of their release, said Fred Reish, partner and chair of the ERISA Financial Services Team at Drinker Biddle & Reath in Los Angeles.
Reish doesn’t expect what lies ahead to be easy.
For starters, IRAs have, in fact, always been covered by the DOL’s fiduciary rules, though the IRS has never enforced them, Reish said. “As a result, over the last 30 or 40 years, a lot of practices have been built up about how advice is given and commissions charged to IRAs so that if those rules had been enforced along the way, there could have been a lot of prohibited transactions.”
He added that many of the practices built up around IRAs are inconsistent with the rules as they exist now, let alone any new regulation. That’s why broker-dealers, banks and insurance companies are fighting the fiduciary rules tooth and nail. They want the new rules to exempt them.
Reish said the prohibited transactions elements of the rule are to blame for slowing down the DOL in its attempt to get the new regulations out this year.