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April 18, 2017 at 09:35 AM
Industry trade groups and lawmakers are urging the Department of Labor to revise, revoke or further delay its fiduciary rule — even the Investment Adviser Association.
Comments continued to flood into Labor on Monday, the last day of the comment period issued by Labor on President Donald Trump’s request that the Department review the rule in its entirety and consider revising the rule or rescinding it.
IAA, which represents advisors registered with the Securities and Exchange Commission and has lobbied in favor of the rule, told Labor in its 10-page comment letter that the fiduciary rule and exemptions, as interpreted by the department, “will have significant, unwarranted — and, in some cases, unintended — consequences for advisors that are already ERISA fiduciaries because the rule applies to pre-contract and sales discussions with prospective clients.”
The application of the rule in this respect, IAA warned, “may adversely affect the ability of investors to assess and access high-quality retirement information and advice.”
IAA urged Labor to address “the fundamental concern that IAA has repeatedly expressed — that an advisor should not be treated as a fiduciary before entering into a relationship with a client.”
In this regard, IAA continued, Labor “has failed to identify abuses in the sales context by persons, like investment advisors, who are seeking out fiduciary relationships, rather than trying to avoid such relationships.”
Attaching fiduciary status to sales conversations and other pre-contract interactions “will adversely impact investors’ ability to retain appropriate investment advisors to provide them financial advice,” IAA argued.
Labor should amend the definition of “recommendation” to exclude “pre-contractual conversations involving an SEC-registered, fee-based advisor, acting as such, who will be a fiduciary once the client engages the advisor,” IAA said.
To the extent that the Department does not amend the definition of “recommendation” as requested by IAA, the trade groups said that any reproposed or revised rule should: (1) adopt a broader, more practical, “hire me” exception to the fiduciary definition; (2) broaden and clarify the “independent fiduciary exception”; and (3) clarify that intra-company conversations do not trigger fiduciary status.
Vanguard’s Qualms
In his letter to Labor, Vanguard CEO Bill McNabb stated that while the rule should not be rescinded, Labor should “modify the scope of its definition of investment advice and certain operational aspects of the rule to protect investors in an efficient and cost-effective way while promoting access to high-quality investment advice, information and education.”
Vanguard’s founder and former CEO, John Bogle, is one of the most prominent advocate of a fiduciary standard for advisors, and the fund giant benefits richly from advisors’ and investors’ broad-based switch to products with lower fees.
Vanguard, McNabb said, believes the rule as drafted “harms investors through reduced access to products, information and advice and is likely to unnecessarily increase litigation costs to investors seeking retirement services.”
