Just as President Barack Obama’s economic policy director, Jeffrey Zients, urged advisors and industry officials Wednesday to provide the Department of Labor with feedback on its plan to revise the definition of fiduciary on retirement accounts, critics of the plan complained the current plan is a costly compliance nightmare that needs work.
“Any advisor acting in their clients’ best interest should support this [DOL] rulemaking and work with us to get it right,” Zients told attendees at an event held by the Bipartisan Policy Center in Washington titled “Champions, Critics and Consequences of a New Fiduciary Standard.” Zients, director of the National Economic Council, added that not passing some type of DOL fiduciary revamp rule “is not an acceptable outcome,” and asked that industry stakeholders continue to be a “constructive” part of the process.
Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, devoted his entire opening remarks at FINRA’s annual conference, held the same day in Washington, to criticizing DOL’s plan. He offered an alternative approach to move a best interest of the customer standard forward.
Bowing to pressure from lawmakers and industry trade groups, DOL said in mid-May that it would extend the 75-day comment period on its Conflicts of Interest proposal by 15 days to 90 days, with the department anticipating a total of 140 days for public comments.
The four-month comment period, Zients said Wednesday, provides “more than ample time” to weigh in.
Input from stakeholders over the past five years since DOL withdrew its original 2010 fiduciary rulemaking “has helped DOL shape” its new rule, Zients said, noting the new plan’s “streamlined exemptions that accommodate existing compensation” structures, as well as the best interest contract exemption (BICE), which Zients said allows firms to “set their own compensation practices as long as they acknowledge they are fiduciaries.”
But a panel of industry officials who spoke after Zients’ remarks debated exactly how the BICE works.
Sameera Fazili, former senior policy advisor on the National Economic Council, who sat on the panel, stated that the DOL’s redraft attempts to create “a level playing field” so that investors “don’t have to worry that the person [they’ve] hired will put their best interest first,” as “it’s well-documented” that people are “confused” by advisor and broker regulatory standards. “We just need rules of the road so the best advice can win out,” she said.
While Fazili stated that BICE “is quite simple,” as it requires an advisor/broker to “make a promise that you’re putting your clients first,”other panelists noted the BICE standard is confusing, particularly as to when a customer must sign it. “BICE requires that you agree to act in the [client’s] best interest [and] have policies and procedures” in place, but “the [BICE] contract itself has its own problems; you have to have it signed before you have a conversation with someone,” said Felicia Smith, vice president and senior counsel for regulatory affairs at the Financial Services Roundtable.
Yet Mercer Bullard, professor of law at the University of Mississippi Law School and founder of Fund Democracy, countered that when an advisor is merely talking to someone about advice “they don’t have to sign the [BICE] contract.”
Pamela Everhart, senior vice president of government relations at Fidelity Investments, noted on the panel that while Fidelity would like “to work with the administration to get this [DOL proposal] right” as there are some “unworkable provisions” in the proposal, “it will be a challenge to get [clients] to sign a [BICE] contract because that’s not what they’re used to doing,” as they do that with the plan sponsor. “To suggest to them before having a conversation that they sign a contract, that would be frustrating and they would be confused.”