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FSI Tells Lawmakers Why DOL Fiduciary Plan Is U.N.W.O.R.K.A.B.L.E.

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The Financial Services Institute is circulating a fact sheet to lawmakers to help explain how the Department of Labor’s fiduciary redraft is “unworkable.”

FSI, noting that it has supported a uniform fiduciary standard, uses each letter in “unworkable” to explain the current redraft’s faults.

The document — which FSI says has been well received on Capitol Hill — is a precursor to FSI’s “heavily detailed” comment letter that the independent broker-dealer trade group plans to submit to DOL in the coming weeks. The deadline for comments is July 21.

Dennis Kelleher, president and CEO of Better Markets, countered that “contrary to FSI’s claims, the only thing ‘unworkable’ is a business model that puts brokers first and their clients second. That’s wrong, and that’s why America’s most prominent retiree, labor, consumer and financial reform advocacy groups are fighting for the DOL’s client first rule and why the industry will say and do anything to stop it. Americans deserve better. Their best interests should come first.”

FSI’s document argues that DOL’s redraft is U.N.W.O.R.K.A.B.L.E. as follows:

Uniform fiduciary standard is supported by FSI: plan includes so many complex and costly requirements, it makes the fiduciary standard unworkable;

Not a business model neutral proposal: as currently written the redraft does not contemplate any currently existing broker-dealer business model.

Wrap accounts are what clients would be steered toward: fee-based accounts may end up being more expensive than a client’s current arrangement — especially in the case of lower net-worth clients. Thus, advisors may steer clients towards fee based/wrap accounts to “levelize” their revenue streams in response to the proposal.

Outsource of advice to the internet/robo-advisors: redraft would cause investors to reach out to robo-advisors and other Internet platforms, which cannot provide the personalized financial planning services that investors require.

Regulatory impact analysis is unsupported: DOL’s $17 billion estimate regarding the cost of “conflicted advice” is not directly supported by any study.

Keeping your advisor is more difficult under revised plan: The best-interest contract exemption (BICE) will make it extremely difficult for many advisors to continue serving their existing clients.

Access to advice is substantially reduced for small investors and small businesses: Small businesses sponsoring a retirement plan with fewer than 100 participants and small income accounts will lose access to advice due to increased BICE compliance costs, while proposed grandfathering provision will require virtually every single account be repapered or advisors decline to provide any further service on the account.

BICE is too narrow to work: DOL has provided an “exemption” that is prescriptive, rather than principles-based, and has costly and difficult compliance burdens for broker-dealers and advisors.

Liability exposure for advisors based upon investment advice: BICE unnecessarily creates a new private right of action, permitting clients to sue advisors in the event of a market downturn. This was never authorized by [the Employee Retirement Income Security Act] or any other related statute.

Education rules changed. “Investment education” must include the ability of advisors and plan sponsors to give tangible examples of investments and allow for investors to learn about decumulation. The prohibition on stating specific investments in educational materials will undermine investor attempts to fully understand their investment options.

— Check out DOL Fiduciary Foes Said to Be Writing Best-Interest Standard Bill on ThinkAdvisor.