Is the proposed DOL fiduciary rule mandating that brokers, insurance agents and other financial advisors must act in their clients’ best interest “unworkable” or “overdue, needed and workable”? “Unworkable” according to the Investment Company Institute which represents the mutual fund and exchange-traded fund industries. “Overdue, needed and workable” according to the Financial Planning Coalition, which is made up of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.
The DOL wrote the rules to tackle billions of dollars in annual losses it says investors face due to conflicted investment advice. The proposed rules (a rewrite of dropped proposed rules from 2010) were issued in April, and the comment period was extended until July 21. Now the DOL has 515 comments to review before hearings scheduled for August 10, 11, 12--and continuing through August 13 if necessary, followed by another comment period.
“If there are changes that can be made, we’re all ears,” said Secretary of Labor Tom Perez at a Senate subcommittee hearing yesterday with the awkward biased title: Restricting Advice and Education: DOL’s Unworkable Investment Proposal for American Families and Retirees. Sen. John Isaken (R-Ga.) opened the hearings dropping a print-out of the 400-page rules tied up with a red ribbon in front of him. What has the industry worried? The DOL’s regulatory impact analysis, issued in April, puts the compliance costs of the proposed rules at between $2.4 billion and $5.7 billion over 10 years (mostly attributed to the cost incurred to satisfy exemptions).
Department of Labor Secretary Tom Perez says the north star is the best interest of the customer.... [+]
Perez tried to reassure critics worried that the rules would limit their ability to sell proprietary products. “What the best interest standard does not mean is that you have to sell someone the lowest fee product. I don’t buy a Yugo because it’s a crappy car even though it’s the lowest cost…It’s not about the lowest cost. The north star is about the best interest of the customer,” Perez said.
Here’s a sampling of what commentators are saying so far.
The Financial Planning Coalition says that the re-proposed rules represent “long-overdue and needed protections for consumers” and are workable with tweaks. “With ever-increasing responsibility for their own retirements and the need to choose from an increasingly complex set of financial products and services, Retirement Investors more than ever need competent financial advice that is in their best interest,” the Coalition says (full comments here).
The Consumer Federation of America praises the DOL for “tough” rules, and calls out the fact that the DOL includes advice re retirement plan rollovers and withdrawals as covered advice as that’s an area with documented abuses. “The rule proposal addresses a very real problem involving self-interested retirement investment advice, curbs industry practices that eat into American’s retirement nest eggs, and does so in a way should allow well-meaning financial professionals operating under a variety of business models to comply,” the Federation says (full comments here).
The Investment Company Institute agrees that advice providers should act in their clients’ best interest but call the rules “convoluted, inflexible, and highly prescriptive,” stating further that: “The unfortunate result is that, if adopted, the proposed rules will severely and negatively impact retirement savers’ access to the guidance, products, and services they need to meet their retirement goals.” (The ICI filed three comment letters, one letter focusing on the DOL’s proposed rule definition of “fiduciary”; another letter on the proposed exemptions to that definition; a third comment letter rebutting the Regulatory Impact Analysis that the DOL uses to justify its proposals; and a fourth summary letter from its president and ceo Paul Schott Stevens.
Stevens letter makes three main points: The DOL should attach fiduciary status only where a genuine relationship of trust and confidence exists; the DOL should recognize that simply selling an investment product or service is not a fiduciary act; and if the DOL retains a “best interest contract” exemption, it should be greatly simplified.
What about going back to the drawing board again? That’s what the Financial Services Roundtable proposes with an alternative, simpler approach to the rules. “Of course, financial advisors should act in their client’s best interest but it shouldn’t require new uncertainty and miles of added red tape to accomplish such a common sense and obvious goal,” said FSR President & CEO Tim Pawlenty in a statement (full comments here).
Plenty of little guys chime in too. For one, Stan Buell, president of the Small Investor Protection Association of Canada, applauds the DOL proposed rules, and expresses hope that the DOL’s actions may influence the Canadian government to issue similar investor protections (full comments here).
