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DOL Fiduciary Rule May Need Some Tweaks: Borzi

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Labor Secretary Thomas Perez vowed Wednesday to continue to fight the lawsuits pending against the Department of Labor’s fiduciary rule just as the rule’s main architect, Phyllis Borzi, conceded that clarifications may be needed to the rule, particularly in the area of education and advice.

At a meeting of the Financial Literacy and Education Commission, held at the Treasury building in Washington, Perez noted that while “lawsuits have been filed” against the conflict of interest rule, “we will continue to fight those vigorously,” adding that he believes DOL is “on the right side of the law and history.”

Borzi, assistant secretary of Labor for DOL’s Employee Benefits Security Administration, stated at the meeting that DOL spent hours trying to ensure the rule struck the right balance between what constitutes education and what constitutes advice. “It’s very difficult to do that,” she said. “Time will tell if we struck the right balance.”

In separate comments to ThinkAdvisor, Borzi said that DOL has been getting feedback on areas in the rule that need tweaking. “People have given us, and we are meeting with people, who have identified areas [where] they want some clarification,” she said. “Some of it is more substantive than others; in some cases it’s tweak a few words.”

Borzi added that DOL will not be making “fundamental changes to the rule, [but] mostly clarifications,” which will come in the form of additional guidance. “We haven’t decided the format” of that guidance.

Marilyn Mohrman-Gillis, executive director of the Certified Financial Planner Board of Standards’ Center for Financial Planning and head of public policy, noted on a panel discussion moderated by Borzi that DOL’s fiduciary rule will “hopefully [be] the tip of the iceberg to push other rules and regulations to protect investors.” Betterment Founder and CEO Jon Stein agreed on the panel that “we hope and expect that other agencies will follow suit” on fiduciary rules. “The future has to be advice in the best interest of consumers.”

Mohrman-Gillis also noted that to help investors navigate the myriad advisor designations, the CFP Board plans to release soon an analysis it performed comparing and contrasting the 140 designations on the Financial Industry Regulatory Authority’s website, many of which are “essentially meaningless” designations. “It’s often difficult for people to figure out which advisors have the expertise to give advice,” she said.

CFP Board hopes its analysis of designations will “spur” implementation of a “simple consumer tool” floated by the Consumer Financial Protection Bureau that would allow consumers to compare advisor qualifications. The CFPB recommendation “has not been put into effect,” Mohrman-Gillis said. Perez noted during his remarks at the event that the U.S. has “a lot of work to do” in promoting financial literacy, noting that the U.S. ranks 14th in the world in terms of financial literacy scores among its citizens. 

DOL has been promoting savings via its state-run retirement plan guidance and protecting consumers via the fiduciary rulemaking, Perez said, adding that eight states have passed state-based retirement initiatives.

Twenty states are “actively working” on state-run retirement programs for private-sector workers.

Sarah Newcomb, behavioral economist at Morningstar, noted on the panel with Mohrman-Gillis and Stein that while there’s a definite “intersection” between psychology and financial decision making, “behavioral economics goes much deeper than that.” She stressed that while defaulting workers into 401(k)s has had “some success” and gets workers to the savings table, ongoing guidance is needed to help them become “better decision makers,” especially when they start the withdrawal phase.

“People have to have basic financial understanding or they will become worse decision makers,” she said.

Lack of financial literacy is “not limited to lower income, lower education,” Newcomb said. “It is quite pervasive across all income ranges. We have a tough challenge ahead of us.”

Newcomb says the most important question that investors should ask their advisor is “How do you get paid?”

— Check out SEC Floats RIA Succession Planning Rule on ThinkAdvisor.



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