The Department of Labor’s fiduciary rule proposal would force broker-dealers to have small savers sign a contract “virtually upon entering the office,” Financial Services Institute officials said today.
A day after President Barack Obama reiterated his support for the DOL's rule, Dale Brown, president/CEO of FSI, and David Bellaire, FSI’s executive vice president/general counsel, hosted a conference call to discuss the potential impact of the fiduciary rule.
FSI has supported a uniform fiduciary standard since 2009, Brown noted, but the DOL’s current proposal is “unworkable” due to stringent disclosure, registration and recordkeeping requirements.
“The proposal needs significant work in order to achieve the goals the Department of Labor has laid out,” Bellaire said, calling the rule’s requirements “a massive undertaking.”
The onerous administrative tasks would likely offend small savers, Bellaire said, who are apt to “shop around” and visit with several different advisors before deciding where to place their money. The fiduciary rule would require a disclosure contract upfront.
“That’s not a situation that makes much sense,” he said. “The investor, I don’t think, would be interested in signing a contract with someone they have not yet chosen to do business with.”
In April, the DOL proposed new fiduciary standards governing the advice provided to qualified retirement plans employer plans and individual retirement accounts (IRAs). The DOL proposed the rule as a way to impose a fiduciary standard on advisors to prevent what it called conflicts of interest and ensure that consumers get the best advice possible.
The paperwork aspect alone would increase costs significantly, Bellaire said. The DOL’s preliminary regulatory impact analysis, released with the proposed rule in April, pegged the cost on broker-dealers and advisors $792 million over 10 years, or about $72 million annually. Industry experts have questioned those figures, but everyone agrees there will be costs.
“We are very concerned about the potential negative consequences,” Brown said, adding that FSI is also studying the economic impact on broker-dealers.
The rule increases costs, confusion and liability exposure “to the point that our members can no longer afford to offer advice and services to cost clients,” he said.
The DOL is accepting written comments until July 21. FSI is working on a “50-plus page” comment letter that will be filed with the department next week, Brown said.
In it, the organization will propose alternatives to achieve the recordkeeping and disclosures the DOL seeks, he said.
“What we’re trying to do is find ways to leverage disclosures that are already provided and available,” Bellaire added.
The DOL plans a three-day public hearing on the fiduciary only rule Aug. 10-12. Obama has said he wants the new rule in place before he departs the White House in January 2017.
FSI advocates on behalf of 104 financial services firms and more than 37,000 independent financial advisors.
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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