Despite widespread criticism, the U.S. Department of Labor continues to work on an update of the definition of the term “fiduciary,” which it applies to retirement plan advisors when enforcing the Employee Retirement Income Security Act (ERISA) of 1974.
This is troublesome because the DOL is moving forward with efforts to update the rule despite little coordination with the SEC, which is also working on a universal fiduciary standard proposal. Without a coordinated effort, the likelihood this could create a conflict between the standards for advisors for investment accounts and the advisors for retirement accounts is substantially increased.
In a June 20 letter to congressmen John Kline and George Miller, senior members of the Committee on Education and the Workforce, Phyllis C. Borzi, assistant secretary for the Employee Benefits Security Administration (EBSA), said the “Department has consulted extensively with the SEC and others both on the legal and economic aspects of our initiatives.” Yet SEC Chairman Mary Schapiro, testifying at a House Financial Services Committee hearing in February, said while the SEC is helping the DOL update a definition of fiduciary, the SEC’s own fiduciary standard project has “no connection” with the DOL project.
While Dodd-Frank mandated that the SEC conduct a study on the scope of the fiduciary standard in investment product sales, the DOL has no such mandate. Yet, instead of waiting for the SEC to act first, the DOL continues to move toward re-proposing a rule. This has irked insurance industry groups and members of Congress alike, with claims of overreach and duplication on the part of the DOL.
“Everybody in Congress, Republicans and Democrats alike, is encouraging the DOL to coordinate with the SEC, but these requests for comment are not being coordinated. So we’re very concerned about the DOL’s parallel action and we think the SEC needs to go first,” Jill Hoffman, NAIFA assistant vice president of federal government relations, told me recently.
NAIFA has previously expressed concern that the proposed new definition imposes rules that would make it difficult, if not impossible, for an advisor who is compensated by commission to provide advice unless he qualifies under the proposal’s “seller’s exception.” Even so, NAIFA says the accompanying compliance requirements would significantly raise the cost of providing investment guidance to plans, plan participants and IRA holders.
Current NAIFA President Robert Miller had this to add on the subject: “I will say that, in all the conversations I’ve had with legislators, if there’s one thing they can agree on, it’s that the DOL is overstepping its bounds. It’s unbelievable the difference between what our legislators think and what the DOL is trying to do.”
We know the SEC is taking its time (see related articles beginning on page 16 and 24). What’s the rush, DOL?