IMHO: Irreconcilable Differences

Last week, the Department of Labor took another step toward finishing another piece of unfinished business.

It did so by proposing regulations necessary to implement (in confidence, anyway) the provisions of the Pension Protection Act (PPA) dealing with investment advice offered to participants under the auspices of a fiduciary adviser.

For the most part, the proposals (see “EBSA Clarifies Investment Advice Regulations’) seem fairly unobtrusive—if not downright “squishy’ (more on that in another column). And, like the recent proposals on fee disclosure (see “IMHO: No One (Else) To Blame’), most of the 129-page document is spent outlining the details of the proposal’s cost/benefit analysis ($10 billion, in case you were wondering—$14 billion in benefits versus $4 billion in implementation/compliance costs). So, if you were having trouble working up the courage to wade through the PDF, take heart—the meat is found in the first 35 pages (with the occasional reference to a glossary at the back).

I was about halfway through the document (yes, the whole thing), when the response from Congressman George Miller (D-California) hit my inbox. Now, I wasn’t surprised to find that Miller, Chairman of the House Education and Labor Committee, took issue with the proposal; it’s an election year, after all. But Miller didn’t just criticize the proposal, or say that it didn’t go far enough, as he has on issues like fee disclosure (see “Miller Fee Bill Cruises through House Committee’). No, he called the proposal “nothing less than a boon for Wall Street and corporate executives’ and urged the DoL to “immediately withdraw these harmful proposals.’ And then he took a final swipe, noting that, “[i]n its final months in office, this administration has developed a disgraceful pattern of sneaking in last-minute regulatory changes at the behest of special interests’ (see “Miller Slams DoL Advice Proposal’).

Setting aside for a moment the contents of the proposal, it’s not like the DoL just rolled out of bed and decided to create some guidelines for investment advice. The PPA set out a lot of new rules and plan design opportunities and then—prudently, IMHO—left fleshing out the details on things like participant notices and, yes, fiduciary adviser investment advice to the ministrations of the Department of Labor. Legislation that, admittedly, is now two years old—but one can hardly argue credibly that the DoL hasn’t been kept busy trying to fulfill the “to do’ list created by the PPA.

The reality is that the investment advice provisions of the PPA were among its most controversial —that they even made the final cut was something of a miracle or mistake, depending on your perspective; that the areas of gray left were so abundant perhaps an implicit acknowledgement of the inability to balance two very opposite views. Doubtless there were (are?) those who hoped those provisions would simply atrophy on the vine for want of attention.

Of course, the heart of the controversy lies in the potential, if not inherent, conflicts of interest that arise when advisers offer advice on investments that provide compensation to those same advisers. Some, of course, believe that those conflicts can never be surmounted, or at least that they cannot be surmounted by every adviser every time. Others believe that the problem can be overcome by a combination of process structure, disclosure, and oversight.

Whether or not the PPA’s broad outline—or last week’s DoL proposal—is sufficient to provide the latter will remain a point of debate, IMHO—except for those who will never reconcile themselves to the notion.