Obama endorses DOL fiduciary redraft, girds for fight

Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, said in a statement that “it is concerning the administration is moving forward with this rule after little to no consultation with congressional tax leaders. Because IRAs are tax-preferred savings accounts and not employee benefit plans, any new fiduciary rules regarding IRAs should be drafted by the Treasury Department. After all, it is the Treasury’s responsibility to enforce the tax code, not the Labor Department.”

Kenneth Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, said that “while we cannot comment on a proposal we have not yet seen, we have ongoing concerns that the DOL regulation could adversely affect retirement savers, particularly middle-class workers.”

The new regulation, Bentsen said, “could limit investor choice, cause inconsistencies as different regulators would apply different standards to the same retirement accounts, prohibit access to investor guidance, and raise the costs of saving for retirement.”

As the process moves forward, “OMB must consider all of the facts, including the fact that the brokerage industry is highly regulated” by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, “including with respect to retirement accounts, and in particular, recent guidance by FINRA with respect to rollovers.”

Dale Brown, president and CEO of the Financial Services Institute, stated that on average, DOL rules are reviewed by OMB for “almost four months.” IRA owners, Brown said, “are already protected by robust federal and state rules governing the retirement market. Therefore, we are eager to study the reproposed rule and respond constructively.”

Brian Graff, CEO of the American Society of Pension Professionals and Actuaries, stated that the White House on Monday “launched an attack on advisors and so-called ‘hidden fees’ and ‘backdoor payments’ by moving forward with a regulation that has its own hidden backdoor effect — keeping many Americans from working with the trusted advisor of their choice, even in the critical decision regarding rollovers from their 401(k) and 403(b) plans.”    

While “people should be protected from unfair and deceptive practices,” said Graff, who’s also executive director of the National Association of Plan Advisors, “all indications are that this rule will block Americans from working with the financial advisors and investment providers they trust simply because they offer different financial products — like annuities and mutual funds — with different fees. This rule could even restrict who can help you with your 401(k) rollover.”

Dennis Kelleher, president and CEO of Better Markets, applauded Obama endorsing DOL’s proposed rule. “By advancing this rule, the president is taking a huge step towards ensuring that tens of millions of Americans finally get unbiased advice, maximize their savings, and increase their chances for a comfortable and dignified retirement,” Kelleher said.

The Financial Planning Coalition — which includes the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors — said in a statement that the White House’s support of DOL’s proposal “is a strong sign that investor protection is a priority for this Administration.”

Given the “significant changes to retirement saving since the passage of ERISA,” the Coalition said, “it is entirely appropriate for the DOL to reevaluate the 40 year-old-rule defining the fiduciary standard for those financial professionals providing investment advice to retirement savers,” adding that the Coalition urges OMB to complete its review of the rule “in a timely fashion.”

Said Barbara Roper, director of investor protection of the Consumer Federation of America: “By closing loopholes in the current regulations and subjecting all retirement investment advice to a fiduciary duty to act solely in the best interests of the client, a well-crafted DOL rule has the potential to save millions of Americans billions of dollars each year. Financial services firms would still be able to adopt a variety of business models and make a reasonable profit, but not by preying on the lack of sophistication of the average worker or retiree who relies on them for best-interest recommendations.” 

Kent Mason, a partner with Davis & Harman in Washington, a law firm serving banks and large corporations, says that while the administration’s goal “is to require advisors to act in the best interest of their customers, the industry has no concerns with such a requirement, as evidenced by the industry’s longstanding support” for an SEC best-interest standard.

The “key issue,” Mason says, “is whether the Department of Labor reproposal will, like the original proposal, render illegal the means by which low- and middle-income individuals and small businesses receive their investment assistance. Given the lack of coordination with the industry on this very difficult issue, serious concerns will remain until the reproposal is made public.”