Compliance March 2, 2011

Fiduciary Policy Should Not “Impede” Common Interactions

Paul Stevens, president of the Investment Company Institute (ICI), presented his organization’s statement to the Department of Labor (DoL).  
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Stevens said it is important for the DoL and the Employee Benefits Security Administration (EBSA) to consider the weight of having fiduciary status–“Fiduciary status entails one of the highest obligations, and also liabilities, known to the law. Fiduciary status underpins the entire ERISA compliance structure. Thus, rules governing who is a fiduciary need to provide clarity. They should not impede commonplace financial interactions. They must allow plans and retirement savers to obtain investments that meet their needs and gather a range of market input into their decision making process.”

The ICI recommended the following revisions to the proposed rule:

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  • Persons who deal with plans or IRA investors must know whether or not they are fiduciaries.
  • Fiduciary status should attach only to genuine advisory relationships where a position of trust and confidence exists.
  • Simply selling an investment product cannot be a fiduciary act. And,
  • The rule should not discourage the assistance that recordkeepers engaged to administer plan accounts provide to help fiduciaries prudently select and monitor plan menu investments.

It also suggested the following clarifications for the sales-exception provisions:

  • The exception is available to a broad range of sellers and agents. For example it should be available when a mutual fund is sold directly by the fund company or its affiliated distributor and when a fund is sold through a broker/dealer.
  • The exception should not require that a seller characterize itself as “adverse.” The sale of a mutual fund is not a zero-sum game where one side benefits only at the expense of the other side.

The complete statement can be seen here.

 

Compliance March 2, 2011

SIFMA Does Not Agree with DoL’s Reasoning

The Securities Industry and Financial Markets Association (SIFMA) had its turn Tuesday at the Department of Labor’s (DoL) hearing to address the proposed changes to the definition of fiduciary.
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Ken Bentsen, Executive Vice President for Public Policy and Advocacy at SIFMA, spoke on behalf of the organization to the panel of regulators from the Employee Benefits Security Administration (EBSA).

SIFMA believes (in accordance with several previous presentations), that the new definition of a fiduciary is much too broad and seeks to impose fiduciary status on those who have no direct understanding of the plan.

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SIFMA’s statements also challenged the reasoning presented by the DoL as to how the new definition would support increased enforcement of the laws. In his testimony, Bentsen said:  “The Department also states that participants and beneficiaries would directly benefit from the Department’s more efficient allocation of enforcement resources by providing greater protections than are available under the current regulation. However, no example or explanation of this benefit is provided that would justify these sweeping changes. We believe there is no evidence that the proposed regulation will be more protective but a great deal of evidence that these “protected” accounts will suffer greater costs and fewer choices.”

He continued: “This proposed rule would reverse 35 years of case law, enforcement policy and the understanding of plans and plan service providers, without any legislative direction to depart from the Department’s contemporaneous understanding of the statute, in order to make it easier for the Department to sue service providers. That seems to us to be an inadequate basis for proposing such a dramatic change. And of course, this enforcement rationale cannot apply to IRAs, over which the Department has no enforcement authority.”

SIFMA’s complete statement can be seen here. 

Other organizations that have presented similar concerns at the hearings include: JP Morgan Chase,The SPARK Institute, American Benefits Council, and Great-West Retirement Services.

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