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Regulation and Compliance > Federal Regulation > DOL

Next Up for DOL Fiduciary Redraft: Hearings

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Now that the comment period on the Department of Labor’s fiduciary redraft has ended, opponents and those in favor of the rulemaking will participate in hearings regarding the plan the week of Aug. 10.

Opponents of the DOL’s redraft of its rule to amend the definition of fiduciary for retirement advice wasted no time filing comment letters by the July 21 deadline as well as releasing studies challenging numerous aspects of the plan.

The Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce submitted several iterations of their objections to the redraft, as did the Financial Industry Regulatory Authority.

The Senate Committee on Health Education Labor and Pensions (HELP) held a hearing the same day the comment period expired, calling it “DOL’s Unworkable Investment Proposal for American Families and Retirees.”

DOL said it had received 300 comment letters regarding its redraft as well as petitions as of the day before the comment deadline expired.

SIFMA submitted eight comment letters on DOL’s proposed rule to redefine fiduciary under the Employee Retirement Income Security Act that not only address the fiduciary rule itself but also the controversial best interest contract exemption (BICE) and other prohibited transaction exemptions. The Wall Street trade group also submitted two studies highlighting the plan’s operational and economic challenges.

The U.S. Chamber of Commerce submitted four separate comment letters on DOL’s plan as well as its related prohibited transaction exemptions along with an economic impact analysis.

Ken Bentsen, SIFMA’s president and CEO, reiterated on a call with reporters SIFMA’s position that the securities regulators—the SEC and FINRA—should lead a best interest standard rulemaking.

“I’m concerned we’ll end up with multiple standards that will confuse clients,” Bentsen said. “We believe DOL is the wrong regulator to be in the lead here, and the rule as written completely misses the mark.”

On a separate call held by the Chamber of Commerce, Brad Campbell, former head of DOL’s Employee Benefits Security Administration (EBSA), who’s now a lawyer with Drinker Biddle & Reath in Washington, said that while DOL intends its fiduciary rule to help IRA owners get better advice, “it undercuts all of those efforts; it will go the other direction and make it more difficult for IRA owners and small businesses to get advice.”

Calling DOL’s plan the “most sweeping” rule since ERISA, Campbell said the redraft “is technically flawed,” adding that “the way it has been proposed it cannot work in practice; it conflicts with other securities regulation.”

SIFMA’s Bentsen noted that while it was “premature” to say whether SIFMA would challenge DOL’s rule in court, SIFMA has asked DOL in its comment to extend its “extremely aggressive” 60-day implementation and eight-month “applicability” timeline. The original ERISA rule’s 36-month implementation deadline, Bentsen said, is what SIFMA has requested “if [DOL] goes to a final rule.”

The Chamber wants a “negotiated rulemaking,” said Alice Joe, managing director of the Chamber’s Center for Capital Markets Competitiveness.

“There will still be more questions if there’s a final rule,” added Aliya Wong, executive director of the Chamber’s retirement policy.

A Call for Harmonization

FINRA called DOL’s approach “fractured” and said that the plan will “confuse retirement investors, financial institutions and advisors.” Moreover, FINRA said the plan would apply a “panoply of regulatory regimes” to different accounts served by the same advisor for a single client.

The self-regulator for broker-dealers stated that the confusion created by DOL’s fiduciary redraft could be easily ameliorated if “a harmonized best interest standard applied to all accounts, retirement and non-retirement, investment and advisory and broker-dealer. The customer and financial advisor could then properly consider the investment portfolio as a whole, subject to a single, harmonized standard,” FINRA said in its 21-page comment letter.

FINRA also stated that the federal securities laws should “serve as the foundation of the best interest standard that will apply to broker-dealers,” adding that DOL’s redraft does not meet “some of the minimum criteria for such a standard.”

Imposing a best interest standard “requires rulemaking beyond what is presently in place for broker-dealers,” FINRA explained in its letter, noting that it “stands ready” to work with the department and the SEC to develop “this additional rulemaking.”

Some changes will be granted, Timothy Hauser, deputy assistant secretary for DOL’s Employee Benefits Security Administration, said during a meeting of the SEC’s Investor Advisory Committee in late July. While DOL is “committed to doing something to fix” the retirement advice problem, he said the department isn’t “wedded to any particular choice of words or regulatory text.”

Hauser added: “The point is to improve this market. We’ve gotten a lot of helpful comments along the way. There will be changes [to the redraft], no doubt about it.”

Jerome Lombard, president of Janney Private Client Group, argued during the Investor Advisory Committee meeting at SEC headquarters in Washington that DOL’s rule is “confusing, burdensome,” would likely eliminate investment advice for lower-income savers and result in “endless litigation.”

Lombard, like other critics, took issue with the redraft’s best interest contract exemption, or BICE, which he said Janney has “no intention of utilizing” as currently laid out.

BICE, Lombard argued, would not only “impose new legal liabilities for firms that utilize it,” but it’s impossible to discern what’s “permissible and not” as the exemption is currently written. Janney, he continued, would also have to “revise our advisor compensation model” under BICE.

Labor Secretary Thomas Perez stated at a Brookings Institution event held in late June that the comments DOL is receiving on the redraft are helping to “sharpen” its thinking on how to make changes to the plan’s prohibited transaction exemptions, like the point of sale disclosure requirements under BICE.


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