Insurance, brokerage and advisor trade groups rushed to file comments before the midnight Tuesday deadline set by the U.S. Department of Labor (DOL) on the agency’s proposal to apply a fiduciary standard of care for advisors dealing with retirement accounts.
Petitions, individual letters and detailed explanations — some as long as 55 pages — from trade organizations poured into the DOL as voices numbering in the tens of thousands made themselves heard before the bell tolled at 11:59 p.m.
Even among trade lobbies and individuals who supported the department’s stated goal of removing conflict of interests real or perceived, many were opposed to the way the DOL proposed to execute and impose a fiduciary standard.
What follows is a roundup of some of the voices for and against the DOL fiduciary rule proposal issued in April. The list isn’t meant to be comprehensive but offers a balance of viewpoints around salient issues noted by the industry.
The points are presented in a “for-and-against” format.
Restricting Access and Choice
“It is simply not credible that advisors and their firms will stop serving middle-income Americans and walk away from providing services to retirement investors who have a collective $14.4 trillion in 401(k) plans and IRAs.”
— Financial Planning Coalition
“While we appreciate and agree with the DOL’s interest in advancing the well-being of worker and retiree savings, we’re concerned that the proposal, as it stands, would lead to unintended results that would limit consumer access to products, services and information.”
— Voya Financial
On Retirement Fund Rollovers
“There are at times, however, reasons it may be in the investor’s best interest to roll out of a 401(k)-type plan: if the plan is poorly run, has high costs and a poor array of investment alternatives; if a retirement investor wishes to consolidate a number of 401(k)s into one IRA for administrative ease; or if they desire to move their assets to the care of a fiduciary who is managing other assets. In this comment, all the rollovers would be advised by a fiduciary.”
— The Committee for the Fiduciary Standard
“Today I helped a client decide what to do with his 401(k) account when he terminated employment. The decision was made that rolling the assets into an Individual Retirement Account (IRA) was the best choice for him. I helped him decide how to invest the IRA account to best meet his risk tolerance, financial situation, tax status, investment objectives, liquidity needs and risk tolerance. I was able to combine these monies with existing accounts for his family resulting in no sales charge for him. Under the current (proposed) rule, I would be prohibited from providing any of those services. “
— John Hevron, wealth management advisor, Northwestern Mutual, Evansville, Ind.
“I recently helped a 62-year-old woman who was retired and needed assistance with what to do with her 401(k). She needed monthly income. We rolled over her 401(k) to an IRA and used a fixed annuity that would provide her with a steady stream of income. She wanted to keep things simple, and that was the reason she didn't want to go to some big brokerage firm or investment advisor. I received commissions from the purchase of the annuity which paid for my time. For over 20 years, I've been providing this type of service for many middle-income Americans. Unfortunately, under the current draft, I would be prohibited from providing any of the services I listed above.”
— Samuel Liang, partner, Rubino & Liang, Newton, Mass.
Best Interest Contract Exemption
“We applaud the DOL’s Best Interest Contract for requiring any person or company that would receive conflicted compensation to do so only if it is in the retirement investor’s best interest, with comprehensive transparency and projected fee vs. performance and risk comparison.”
— Kathleen M. McBride, chair, The Committee for the Fiduciary Standard
“The proposal's new Best Interest Contract Exemption will create a complicated regulatory structure that will unnecessarily limit savers' choices … the DOL's long list of requirements and exemptions are currently unfeasible. It will result in small- and middle-income savers being forced into accounts that may not suit their needs or preferences and cause others to go at it alone without the assistance of an investment professional.“
— Financial professionals and advisors at broker/dealers and insurers Bay State Financial, LPL, MetLife, Raymond James
“In its current state, the Best Interest Contract Exemption is completely unmanageable, not so much for its intent, but for the fact that "best" can be a moving target, and what may be best today isn't so tomorrow. An advisor could find himself in violation of the regulation on a snapshot basis, which would render it virtually impossible for an advisor to comply.”
— Mark Miller, registered representative and investment advisor representative, Ameritas Investment Corp.
Prohibited Transaction Exemption (PTE 84-24)
“The Department is proposing to amend PTE 84-24 to require all fiduciaries relying on the exemption to adhere to the same impartial conduct standards required in the Best Interest Contract Exemption. At the same time, the proposed amendment would revoke PTE 84-24 in part so that investment advice fiduciaries to IRA owners would not be able to rely on PTE 84-24 with respect to (1) transactions involving variable annuity contracts and other annuity contracts that constitute securities under federal securities laws, and (2) transactions involving the purchase of mutual fund shares. Investment advice fiduciaries to IRA owners would instead be required to rely on the Best Interest Contract Exemption for most common forms of compensation received in connection with these transactions.”
— DOL’s Employee Benefits Security Administration Conflict of Interest Rule
“In its current form, PTE 84-24 permits brokers who are fiduciaries to recommend the purchase of insurance or annuity contracts for a plan or IRA and to receive commissions on the sales. The broker/dealer industry has historically relied on PTE 84-24 heavily, particularly in the context of commissioned sales of annuity products to IRAs. Any contraction of or amendment to the relief offered under PTE 84-24 would appear to require the department to offer a clear path toward compliance and sufficient flexibility to allow financial advisors and investors to adjust their arrangements accordingly. Unfortunately, PTE 84-24, in its proposed form, offers neither.
— Financial Services Institute
Fees and Transparency
“The goal here is to put an end to Wall Street brokers who benefit from back door payments or hidden fees at the expense of their clients.”
— President Barack Obama, White House Conference on Aging, July 2015
“Last year along, hidden fees, unfair risk and bad investment advice robbed Americans of as much as $17 billion. Advisers should be working in our best interest. It's time to close this loophole and ensure a high standard that holds anyone who gives financial advice genuinely accountable for helping everyday Americans choose the best investments for us, our families and our future.”
“No two clients are the same. Some clients need a complete plan that is fee based. Some need only money management that is fee based. Some need insured products, that have some quarantined benefits. Some need alternative products that can only be offered as FINRA brokerage accounts.”
— Rudolph Mahara, president, Mahara Wealth Partners
Cost/Benefit of a Fiduciary Standard
“In conclusion, the department believes that the new proposal would mitigate advisor conflicts and thereby improve plan and IRA investment results, while avoiding greater than necessary disruption of existing business practices. Based on its analysis, the department is confident that the proposed rule would deliver large retirement investor gains and important other economic benefits, which will more than justify its costs.”
— U.S. Dept. of Labor, Fiduciary Investment Advice, Regulatory Impact Analysis, April 2015
“The Regulatory Impact Analysis (RIA) produces many different numbers representing different underlying assumptions, resulting in industry cost estimates that vary wildly from about $2 billion per year to $50 billion per year. The range of numbers is so wide it suggests no scientific confidence in their own methodology.”
— Securities Industry and Financial Market Association
“While it is true that retirement savers with meritorious claims should find it easier to recover their losses if the rule is adopted, there is simply no basis for the claim that the rule would significantly increase the amount of litigation. To suggest that it would ignores not only the high cost of pursuing claims, and the particular difficulty of pursuing class action lawsuits, but the plain language of the rule itself.”
— Consumer Federation of America
Reasonable and qualified financial advisors may reach different conclusions about which factors are more significant and which product best meets the criteria that the financial advisor believes are most relevant. Fiduciaries generally are not required to discern or recommend the “best” product among all available for sale nationwide or worldwide. Investment advisors, for example, are required to recommend suitable investments, not the “best” investment available to the customer. A requirement to recommend the “best” product would impose unnecessary and untenable litigation risks on fiduciaries.
—Financial Industry Regulatory Authority
What is presented to an IRA investor as trusted advice is often paid for by a financial product vendor in the form of a sales commission or shelf-space fee, without adequate counter-balancing consumer protections that are designed to ensure that the advice is in the investor's best interest. In another variant of the same problem, brokers and others provide apparently tailored advice to customers under the guise of general education to avoid triggering fiduciary status and responsibility.
—DOL’s Employee Benefits Security Administration Conflict of Interest Rule
“The proposal limits the kinds of education that can be provided to a plan sponsor or participant without triggering fiduciary obligations. It is vague and confusing with respect to the sale of proprietary products, in particular, variable annuities, and imposes very significant data disclosure and retention requirements on the financial institutions. Some of the disclosures appear to be in direct conflict with federal securities rules, and others could violate privacy rights.”
—National Association of Insurance and Financial Advisors
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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