WASHINGTON, D.C. -- A former Obama appointee reassured industry observers on the fiduciary rule and the future of doing business this morning at the Insured Retirement Institute Government, Legal and Regulatory Conference.
For starters, Seth Harris, former acting Secretary of Labor, said he is unconcerned about how "reasonable compensation" is defined in the rule. Harris was deputy secretary when the initial fiduciary rule was introduced in 2010.
"The courts have worked out what ERISA means by reasonable compensation," said Harris, now a member of Dentons' Public Policy and Regulation practice. "I worry a lot less about reasonable compensation. ... In fairness, my clients do."
Differential compensation does present "difficult questions" that "are going to take some time to work out," Harris conceded. Examples of these questions include how to normalize fees as opposed to commissions, and how to establish consistent fees across products.
Level fee doesn't work for everybody's business model, Harris noted.
"This is the area where a lot of us will be spending a lot of our time figuring out what we can and cannot do," Harris said, adding that the issues are "solvable problems" that will require work.
Another issue, Harris said, is how to establish a Best Interest Contract standard. Does the contract vary across products? Is it individualized to each investor's risk tolerance, for example, Harris asked.
"I would say the answer to this last question is no, it does not have to be individualized," he said.
The trend away from defined benefit plans set the stage for additional regulation extending the definition of "fiduciary," said Harris, who noted he was not speaking for the DOL.
"Now what we have is individual retirement investors," he said. "They're basically making (investment) decisions once or twice, or maybe three times at most in their lives.
"The department's feeling was there needed to be a fiduciary definition applied to those who were giving retirement advice," Harris explained.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org.
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