Fiduciary Wording Invokes Storm of Comments

The DOL’s release on Tuesday of the reworded fiduciary proposal was a critical event for the industry—so there was no shortage of either positive or negative commentary following the proposed rule's release.

It’s safe to put Congresswoman Ann Wagner (R-Missouri) in the camp that deeply disfavors the proposal: “Today’s proposed rule from the Department of Labor potentially harms the very people that it claims to protect: low- and moderate-income Americans seeking advice for investing for their retirement,” said Rep. Wagner, a member of the House Financial Services Committee.

“[The proposal] would greatly expand the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) and fails to take into account the vast regulatory structure already in place,” she added. Wagner also cited the length (or shortness) of time of the Office of Management and Budget (OMB) review as a potential red flag.

The Securities and Exchange Commission (SEC) should go first in regulating this space, Wagner believes. “We hope that Democrats who have supported that position previously continue to do so,” she said. (Wagner in February introduced a bill that was passed by the House Financial Services Committee to counter the proposed rule.)

Wagner came out in a full-on attack on President Barack Obama and Senator Elizabeth Warren (D-Massachusetts), calling the proposal an “ill-advised, top-down assault on local financial advisers and broker/dealers” that is typical of the president and the senator. “Instead of allowing hard-working Americans access to affordable, sound financial advice to prepare for the future, they have created a solution in search of a problem to further hurt the middle class,” she contended.

The National Association of Plan Advisors (NAPA) holds steady on its position. The DOL’s long-awaited fiduciary re-proposal will add cost and complexity to the rollover process, the group said in a statement, citing written contracts with multiple signatures, along with potentially burdensome initial and annual disclosures.

“Requiring so many layers of duplicative disclosures could be counterproductive and cost-prohibitive to offering this critical level of support to 401(k) participants at a crucial point in their retirement planning,” Brian Graff, executive director NAPA, cautioned in a statement.

NAPA Remains Concerned

Graff acknowledged what he called the department’s “dedicated staff” and their diligent work in trying to balance concerns about protecting the interests of consumers with the ability of those same consumers to work with the advisers they choose. “We remain concerned that the compliance costs may outweigh the benefits, but look forward to continuing to work with the DOL to further streamline and enhance this new proposal,” Graff said.

Some are taking the watchful view: The proposal deserves close study, believes Paul Schott Stevens, president and chief executive of the Investment Company Institute (ICI). “We will carefully review the hundreds of pages of the rule and the proposed exemptions to ensure that America’s retirement savers can still receive the information, guidance, and choices they need to make sound investment decisions,” Stevens said in a statement.

Stevens pointed to the support and information that the mutual fund industry offers retirement savers, including disclosure on the cost of investing, and states that mutual fund fees in retirement plans have been dropping for the last two decades. At the same time, he says, “the services provided to employers and plan participants have increased. The new rule must ensure that employers and savers still have access to that support and service.”

The National Association of Insurance and Financial Advisors (NAIFA) is also waiting.

“According to the DOL’s summary of the proposed regulations, fiduciaries must provide impartial advice in their clients’ best interests and cannot accept payments creating a conflict of interest, unless they satisfy one of two, possibly three, exemptions,” noted Juli Y. McNeely, president of NAIFA.

“Generally, the adviser and the client would be required to enter into a written contract that has specific provisions, including that all advice be in the best interests of the client, that conflicts be clearly disclosed, and that procedures be in place to encourage advisers to make recommendations in the clients' best interests,” McNeely pointed out.

Time to read and analyze the regulation is needed, she said, before being able to determine the impact on NAIFA members and those they help prepare for retirement. Additional PLANADVISER coverage of the structure of the new rule proposal is here.