The U.S. Chamber of Commerce is prepared to use this year “every tool” it can — including lobbying Congress — to voice its concerns about the Department of Labor’s redraft of its rule to amend the definition of fiduciary on retirement accounts.
David Hirschmann, president and CEO of the Chamber’s Center for Capital Markets Competitiveness, said on a Tuesday call with reporters that the Securities and Exchange Commission is “the primary regulator” regarding fiduciary duties, and that the Chamber “doesn’t want DOL creating another regulatory approach.”
Said Hirschmann: “What we really need to have is all the players in this [fiduciary] space—DOL, the Securities and Exchange Commission and the Financial Industry Regulatory Authority—[collaborate] on what the system [for fiduciary advice] should look like. But that’s not what’s happening here — DOL wants to expansively act” on its own.
The Chamber held the call to discuss its annual Fix. Add. Replace. regulatory agenda for 2015, which proposes ways to address challenges and provide necessary changes in areas the Chamber believes have the “broadest impact on the American economy and the millions of businesses that rely on effective capital formation.”
“We should always seek ways to better inform and serve investors,” Hirschmann said, “but one size-fits-all rigid rules” by DOL are “a step in the wrong direction.” He said that the Chamber would “judge any proposed rule by DOL by one simple test: will it help ensure investors have access to more advice and well-disclosed choices to plan and save for their retirement?”
The Obama administration’s claim that there are currently “no rules of the road” to protect investors is “missing everything that the SEC and FINRA” do, he said. The Chamber, he continued, is concerned about “the DOL regime of prohibiting everything unless they allow it” via its prohibited transaction exemptions (PTEs).
While the DOL says that the PTEs under its fiduciary redraft “will be broad and flexible,” Hirschmann said, “DOL has [historically] been very narrow, slow and rigid in their PTE approach.”
President Barack Obama cited statistics released Feb. 23 in the White House’s new report from his Council of Economic Advisers showing that conflicts likely lead, on average, to 1 percentage point lower annual returns on retirement savings, or a total of $17 billion a year.
But Brad Campbell, former head of DOL’s Employee Benefits Security Administration, who’s now counsel at Drinker Biddle & Reath in Washington and advises financial service providers and plan sponsors on ERISA Title I issues, including fiduciary conduct and prohibited transactions, says that by DOL’s own estimates, “lack of access to investment advice costs participants about $100 billion per year in preventable investment mistakes.”
In using the “blunt tool of the prohibited transaction rules — it is difficult for participants to get any advice at all,” Campbell said in an email message. “This is the risk the [DOL’s] reproposed regulation presents, that it may go so far in trying to eliminate conflicts that it also effectively eliminates access.” The real-world problem of PTEs in the redraft “dwarfs the ‘back-of-the-envelope’ predictions from the White House about the cost of conflicts.”
Campbell cited, however, the “interesting statement” from the administration that there will be “a ‘principles-based’ exemption regarding conflicts” in DOL’s reproposal.
“While it is not clear what this means, one may hope that it is an exemption with reasonable conditions permitting fiduciary advisors to plans to help plan participants with IRA rollovers, rather than a prohibition of such advice,” Campbell said. “The reality is that a 401(k) is an accumulation vehicle, not a distribution vehicle. People need access to IRAs and advice to make a plan for spending the savings. A blunt application of the prohibited transaction rules could prevent people from getting this needed advice from known and trusted advisors to their plans by effectively forcing them to go find a stranger.”
Even as the White House and DOL “are worried about conflicts, the right public policy answer cannot be to say that we’d rather have you get no advice simply because institutional products are cheaper than retail products,” he continued. “Fees affect outcomes, but so do uninformed financial decisions — and according to DOL, uniformed decisions cost a lot more.”
— Check out Chamber of Commerce Raises Concerns With DOL Fiduciary Redraft on ThinkAdvisor.