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Chamber questions DOL fiduciary rule’s cost estimates

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The Department of Labor’s estimates of what its proposed fiduciary rule would cost broker-dealers in compliance are based on “arbitrary” and “capricious” calculations that dramatically lowball reality, according to a comment letter by the U.S. Chamber of Commerce.

The DOL’s preliminary regulatory impact analysis, released with the proposed rule in April, estimated “information collection burdens” the rule would place on broker-dealers and advisors.

Those costs, accounted for largely by new disclosure requirements, will run broker-dealers $792 million over 10 years, or about $72 million annually.

The Chamber thinks that number is woefully low. In a comment letter sent to the DOL last month, it puts the actual administrative costs to be five to 10 times higher.

The Paper Reduction Act of 1995 requires the DOL and other regulators to assess the administrative cost of regulation on affected stakeholders, in order to weigh the cost-benefit of rules on businesses and consumers.

In the case of the DOL’s rule, an accurate estimation of the price tag of new disclosure requirements is necessary the gauge whether the cost of the rule doesn’t exceed its benefits, and to assure that “regulations do not cause more harm than good,” according to the Chamber’s comment letter.

“Questionable” assumptions are made throughout the DOL’s analysis and come with no proof or empirical evidence, claims the letter.

At one point in the DOL’s estimates, the agency estimates in-house attorneys at brokerage firms will spend 60 hours drafting disclosures required under the rule’s controversial Best Interest Contract Exemption provision, which will allow advisors to charge commissions on the products they recommend only after fully disclosing costs to investors.

But that time estimate is not supported with data, as the DOL “appears to have pulled the number 60 hours out of nowhere,” according to the comment letter

The DOL estimates that only about 63 percent of broker-dealers registered with the Securities and Exchange Commission will use the rules Best Interest Contract Exemption. But that number is also not supported by evidence, and were it to prove to be low, would materially affect the DOL’s estimates.

And labor costs on administrative and IT requirements are also not substantiated, according to the Chamber. Nor does the DOL attempt to account for the time investors will have to spend reading and understanding contracts.

Estimates of the cost to disclose carve-outs in the proposal related to service providers, advisors to plan sponsors with more than 100 participants, and providers of education services, all of which can be offered by non-fiduciaries, are also unsubstantiated from the Chamber’s perspective.

Underestimating the magnitude of compliance burdens may ultimately mean the rule’s costs may outweigh the benefits it hopes to achieve, argue the authors of the Chamber’s letter.

“Rather than proceeding down a too-costly regulatory path, the government should consider more carefully whether there may exist prudent alternatives to achieve the desired protections and benefits” for retirement investors, said the letter.


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