While the Department of Labor has received a “few valuable nuggets” on ways to improve its proposed rule to redefine fiduciary under ERISA, there are other suggestions DOL can “safely ignore” as it moves ahead to modify the rule, said Barbara Roper, director of investor protection for the Consumer Federation of America.
In her testimony during the four days of hearings held from Aug. 10-14 at DOL headquarters in Washington, Roper listed three areas that she argued are “last gasp efforts of industry to maintain a status quo that has been hugely profitable for them.”
First is the argument that the industry supports a best interest standard, “just not the apparently fatally flawed best interest standard you’ve put forward here,” Roper told DOL officials.
“I’d be prepared to make a small wager that virtually every industry representative who testifies here this week will, at some point in their remarks, profess their support for a best interest standard. Some of them may even mean it,” she said. But upon closer review, “there is considerably less there than meets the eye.”
For instance, the industry (meaning broker-dealers and insurers) would be happy to support a best interest standard, Roper said, “as long as it doesn’t cover the full range of services that retirement investors perceive and rely on as objective investment advice.”
Or, Roper continued, the industry will support a best interest standard as long as no one “actually expects them to seek to do what is best for the customer.” She went on to note her “shock” to see FINRA “make this argument in its comment letter, in which they basically suggested that ‘best interest advice’ and ‘suitable advice’ are really just two different names for essentially the same thing. I can assure you that that’s not how investors see it.”
Second, DOL should not heed the hue and cry from Congress and those in the BD and insurance industries that DOL “step aside” and let the SEC issue a fiduciary rule first “to avoid the confusion that could arise if different accounts were subject to different standards.”
Said Roper: “If the SEC were eventually to get around to adopting a rule — something that is far from guaranteed; at CFA we’ve been waiting for a little over 15 years — it would by definition be limited to recommendations regarding securities,” not retirement accounts.
Third, she noted the industry’s “favorite argument” against the rule, that many brokers will simply stop serving the retirement plan market if the rule is adopted, and that investors, particularly small savers, “will be harmed if they lose access to advice or are forced into more expensive fee accounts.”
There is “actually no compelling evidence that fee-based brokerage accounts are consistently more affordable than fee accounts when the total cost of investing is taken into account,” Roper argued.
She noted the fact that “all fee-based accounts today are regulated as advisory accounts. And, guess what? The sky didn’t fall. Brokers didn’t stop offering the accounts. On the contrary, there’s more money in fee-based accounts at broker-dealers today than ever before.”
— Read “DOL Set to Issue Final Fiduciary Rule” from the September 2015 issue of Investment Advisor.