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DOL Should Scrap Fiduciary Rule Plan: Roper

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Barbara Roper (Credit: CFA) Barbara Roper, director of investor protection for the Consumer Federation of America.

The Labor Department should withdraw its fiduciary rule package as it allows for conflicted investment advice and gives most rollover recommendations a “regulatory free pass,” the Consumer Federation of America told Labor in a Thursday comment letter.

“We urge you to withdraw in their entirety both the final rule reinstating the definition of fiduciary investment advice and the proposed exemption to permit investment advice fiduciaries to engage in a broad range of conflicts of interest,” the consumer group told Labor in its 51-page comment letter.

Barbara Roper, director of investor protection at the consumer group and co-author of the letter, told ThinkAdvisor in an email on Thursday that the 1975 regulatory definition of fiduciary investment advice “was reinstated as a final rule,” in a separate final rule.

Unlike with the proposed fiduciary transaction exemption, or PTE, there was “no opportunity for comment” on the final rule reinstating the 1975 fiduciary five-part test under ERISA, Roper added. “No consideration of whether it should be amended. The preamble [to the rule] includes a discussion of how it will be interpreted by the Department, but the rule is final,” she explained.

In a tweet Thursday, Roper said the consumer group’s request likely will fall on deaf ears. “Earlier today, [the Consumer Federation of America] filed a comment letter urging DOL to withdraw its #BadAdviceRule. They won’t. The proposal does exactly what they intended. It benefits Secretary [Eugene] Scalia’s former clients at the expense of retirement savers.”

Labor’s plan is a “multi-billion-dollar transfer of wealth from the retirement accounts of American working families to the wealthiest,” Roper argued in the comment letter. “Instead of strengthening protections for workers and retirees, it makes it easier for financial firms to profit unfairly at their expense.”

30-Day Comment Period

The proposed prohibited transaction exemption  meant to align with the Securities and Exchange Commission’s Regulation Best Interest  had a 30-day comment period that ended Thursday.

Lawmakers and public interest groups balked at the short 30-day comment period, which was half the normal 60-days. Labor’s PTE was released on June 29, a day before Reg BI’s June 30 effective date. Labor’s proposal was published in the Federal Register on July 7.

For the proposed new class exemption, Labor “is providing only 30 days to comment, far too short a time period to allow thoughtful and comprehensive comments on this complex and highly technical proposal,” wrote Roper and Micah Hauptman, financial services counsel at the consumer group.

“This suggests that the Department, confident of its support from financial industry groups, doesn’t feel the need to hear the views of other affected parties,” they added.

Labor’s regulatory package includes the proposed PTE and a final rule reinstating the 1975 regulatory definition of fiduciary investment advice and its five-part test.

Roper and Hauptman maintained that “we know from past experience that the 1975 regulatory definition of fiduciary investment advice, with its five-part test, is easily gamed by financial firms that like to market themselves as trusted advisers while avoiding any fiduciary obligations to their clients.”

By reinstating “that deeply flawed definition, the Department is ensuring that these firms, as well as their employees and agents, will only be investment advice fiduciaries when they choose to be,” they explained.

“Many if not most rollover recommendations, and virtually all of those involving rollovers into non-securities, will get a regulatory free pass as a result of the Department’s decision to reinstate this outdated, loophole-filled definition,” Roper and Hauptman said.

Labor’s decision to base its proposed new prohibited transaction exemption on the “deeply deficient [Reg BI] means that, even when firms do operate as investment advice fiduciaries, they would be free to engage in a wide variety of practices that encourage and reward harmful advice,” the two wrote.

“Because the proposal doesn’t include any enforcement mechanism for IRA investors, firms would have little incentive to comply, and millions of IRA investors harmed by the conflict-driven advice unleashed by this proposal would have no ability to recover their losses,” Roper and Hauptman argued.


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