The Labor Department is considering changing some aspects of exemptions in its proposed fiduciary standard expansion, the department’s secretary said on Tuesday.
The department is focusing on additional data retention and point of sale disclosure requirements in the best interest contract exemption because of comments on the rule, Secretary Thomas E. Perez said during a Brookings Institution event in Washington, D.C.
“The reason those comments are so important is because they've already begun to sharpen our thinking about whether we should make changes to the exemption,” Perez said. “So that the proposal accomplishes its goals in the simplest, least burdensome way for all concerned,” Perez said during a policy forum on promoting financial well-being in retirement.
Perez also disclosed that a public hearing on the proposal will take place during the week of Aug. 10, after which the comment period will re-open for two weeks once the hearing transcript is published. The initial comment period, extended to a total of 140 days recently, will be July 21.
His comments implying that the agency is taking a hard look on additional data retention and point of sale disclosure provisions of the proposed rule mirror criticism voiced by National Association of Insurance and Financial Advisers (NAIFA) in a survey released today.
The new rule would require sellers (broker dealers, insurance companies, banks) to hold copious amounts of records on purchases, sales, costs of investments for six years.
Perez acknowledged that some commenters supported the two provisions, but implied that he would like to hear more opinions about them.
“The more voices that are heard — the more open, inclusive and transparent the process — the stronger the new rule will be at the end of the day,” Perez said.
In his comments, Perez acknowledged that the proposal has detractors in the financial industry, citing Bank of America and its Merrill Lynch Management securities unit, as well as some mutual fund houses. But he also noted that companies that serve small investors through the use of technology reject ideas that small savers will be unable to get substantive investment advice through the rule.
“When I talk to firms like these and tell them about the argument on the other side — that our rulemaking will make it impossible to serve the small saver — they say: ‘Give those small savers my email address’,” Perez said. “The bottom line is that this is a multitrillion dollar market; there's just no way industry will walk away from it.”
Moreover, Perez said, “I believe, in fact, that the new rule will be a catalyst for further innovation in the industry, as more firms devise new tools and strategies — assisted by modern software and new technology-based tools — to accommodate even those with only a few thousand dollars to invest.”
Perez said he recognized the huge problems associated with major reforms in delivery of financial firms imposed by Great Britain.
“The experience with a similar proposal in the United Kingdom can be instructive here,” he said. “Their proposal was a lot more stringent — new standards and qualification requirements, as well as a ban on commissions.”
Perez said one problem with the UK rule is that advisors had to reexamine their business models, “which, like ours, far too often had misaligned incentives. But in both countries, we know that the market can respond to these initiatives with new, innovative, and low cost ways to provide advice.”
Perez said the department’s proposal does not include detailed rules on what advisers can and cannot do to serve their client.
“While it is undergirded by the unassailable principle that retirement advisers should make their clients' best interests paramount, we leave a lot of room within that framework for industry to figure things out,” Perez said. “There is no one-size-fits-all template for serving clients' best interests. Our intent here is to provide guard rails, not to put anyone in a straitjacket.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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