Department of Labor officials found some areas of agreement with financial execs this afternoon on its controversial “best interest contract exemption,” known as BIC.
In place of the BIC, Charles Nelson, CEO of retirement for Voya Financial, proposed a one-page “Customer’s Bill of Rights.” It would include any disclosures, compensation terms, and encourage investors to shop around, Nelson said.
“It’s a very efficient consumer-friendly way of providing this info,” he added.
Under the DOL’s proposed fiduciary rule, the BIC would be signed by clients upfront. Industry opponents say the requirement would turn off potential customers, as well as expose broker-dealers to legal liability that would cause many to abandon the commission model.
The BIC would allow brokers and agents to receive commissions, which the DOL considers “conflicted,” if they sell products purchased with retirement funds. But some agents and brokers who would use the BIC believe the agreement will be off-putting when presented to prospects early in the sales process.
Timothy Hauser, a deputy assistant secretary at DOL, asked several questions and debated the need for a contractual disclosure with Nelson and Ralph Derbyshire, senior vice president and deputy general counsel for Fidelity Investments.
“You have to have the appropriate flexibility in any Bill of Rights,” Nelson said during one exchange. “We think participants can distinguish between a sales presentation and advice.”
“As a rule, aren’t both things happening?” Hauser asked.
“That’s a fascinating question,” Nelson replied. “I’m not sure that’s completely fair to say all participants want advice.”
Derbyshire noted that Fidelity includes all information on its website concerning compensation, fee structures and investment performance.
“Those kinds of agreements are legally enforceable and should be sufficient,” he said, adding that, “I think what we’re talking about here is being a little more prescriptive about it upfront.”
Still, Derbyshire stopped short of agreeing with Hauser’s version of the BIC. The DOL has said it is pushing the fiduciary proposal to shield uneducated investors from financial professionals whose advice is clouded by conflicts of interest.
Through two days, industry representatives have insisted that if the rules take effect, it will leave millions of small savers behind in plans that wouldn't meet the minimum asset levels for fee-based accounts. Earlier Tuesday, both sides discussed studies validating their respective cases.
Asked if Fidelity discusses compensation details upfront with clients, Derbyshire hedged, noting the company has thousands of mutual fund options.
“But … I think you should be able to say ‘My compensation will vary,’” he concluded.
Once the hearing transcript is published, which takes about a month, a second two-week comment period will commence. The rule could be further revised following the hearing and the comment period.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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