DOL Receives Flood of Comment Letters on Fiduciary Rule

Letters are flooding into the Department of Labor (DOL) about the fiduciary reproposal. The Securities Industry and Financial Markets Association (SIFMA) sent eight letters on Monday; other organizations are making suggestions about the rule, raising concerns or giving it a thumbs-up. 

Comments range from anxiety that the re-proposal, as it stands, will hinder low- and middle-income earners’ ability to save by creating red tape and conflicts with other regulations (according to the Financial Services Roundtable) to concerns about increased regulatory burdens and costs (ERIC, the ERISA Industry Committee).

Overwhelmingly the organizations are in favor of a standard that would have advisers acting in the best interest of the investor, but the details are what need to be hammered out. For example, the Financial Services Roundtable (FSR) is urging the DOL to adopt its “SIMPLE” proposal, intended to accomplish a client best-interest standard in a more straightforward manner. FSR calls the DOL proposal well-intended but too long, unnecessarily complicated and impractical.

FSR’s SIMPLE acronym—for Simple Investment Management Principles and Expectations—requires financial professionals and institutions to put their customers’ interests first and allows advisers to receive only reasonable compensation for their services. It also requires financial professionals and institutions to provide customers with clear and concise disclosures in plain English, and it empowers regulators to hold financial advisers and their companies accountable for any violation of rules.

The Institute for the Fiduciary Standard kept its comments to the areas it felt needed “particular attention to ensure that the administration of the rule meets vital objective and the high aspirations of the rule.” They were particularly interested in the conflict of interest rule as well as some of the points raised by the proposed Best Interest Contract Exemption. 

Calling the exemption a game-changer, the Institute for the Fiduciary Standard says it seeks to address circumstances in an unconventional way, letting firms continue to use conflicted compensation arrangements if the firm and broker/dealer or adviser also contractually agree to adhere to the Employee Retirement Income Security Act (ERISA) best interest standard. In other words, after decades of associating the word “conflicts” with the word “prohibited,” the DOL now associates it with the word “permitted.”

The Insured Retirement Institute (IRI) weighed in on the re-proposal in a staggering 69 pages. “We are deeply concerned that the extensive requirements contained within this proposal would have serious and far-reaching unintended consequences for millions of American retirement savers,” IRI President and CEO Cathy Weatherford said in a statement.

Financial professionals should, of course, work in the best interest of their clients when recommending investments to retirement savers, Weatherford said, but IRI stressed that an unintended consequence of the proposal could be limiting consumers’ access to annuity products “at a time when we should be encouraging and promoting lifetime income strategies as a source of retirement income that cannot be outlived.”

IRI outlines a number of revisions to the rule that it says would establish a best interest standard while preserving consumers’ access to retirement planning advice and retirement income products.

IRI is concerned that the amendments to Prohibited Transaction Exemption (PTE) 84-24 as currently proposed will limit the availability of lifetime income options for retirement savers. In the context of the IRA market, the exemption currently would only apply to fixed annuities. Variable annuities, like fixed annuities, offer guaranteed lifetime income features, which are a primary driver of their use by consumers. To ensure a continued robust market of lifetime income options for consumers, IRI has requested the proposal be revised to make relief under the exemption available to all annuities.

The main points raised by the Insured Retirement Institute (IRI) are:

• Financial professionals should be held to a best interest standard when recommending investments to retirement savers.
• Consumers are entitled to freedom of access to retirement income guarantees.
• In the post-defined benefit plan era, the availability of guaranteed retirement income through IRA rollovers meets a critical consumer need.
• Rules for annuity products must be specifically crafted to account for their guaranteed lifetime income features.
• Competitive annuity markets serve consumer interests.
• Consumers have a right to choose their preferred source of retirement advice, including the option to work with advice providers who are experts on proprietary products, and how their advice provider is compensated.
• The Administration’s public policy position in favor of access to and utilization of guaranteed lifetime income products should be advanced.

IRI’s comment letter can be seen here.

Meanwhile, the Financial Planning Coalition (FPC) issued a statement of its strong support for the re-proposal, calling the rule “long overdue, needed for retirement investors and workable for advisers and firms.”

FPC’s letter addresses three areas:

Consumer protection and fiduciary accountability. “The rule will provide much needed protections to help retirement investors navigate the complex and confusing financial services marketplace.”

Misplaced arguments from others in the industry. ” Opposition arguments against the re-proposed rule . . . are unsupported or rebutted by empirical research, and are inconsistent with the Coalition’s experience in establishing a fiduciary obligation for its stakeholders. “

Several modifications to strengthen the final rule. “Some clarifications and changes will only strengthen an already comprehensive rule proposal, ensuring protections for retirement investors while providing advisers and financial institutions flexibility in implementing the final rule.”

The coalition comprises three industry organizations: the Certified Financial Planner Board of Standards (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). Its 35-page comment letter can be read here.

NEXT: The rule will clamp down harmful industry practices, Consumer Federation of America says.

Also supportive of the re-proposal is the Consumer Federation of America (CFA), which applauds the DOL for strengthening protections for retirement savers and reining in what it says are harmful industry practices.

CFA’s 83-page comment letter cites the following as essential components of the proposed rule:

It adopts a functional definition of investment advice that ensures that all those who provide individualized, actionable investment recommendations to retirement plans, plan participants, or individual retirement account (IRA) investors will be subject to a fiduciary duty under ERISA.

It includes within the definition of investment advice recommendations regarding rollovers and benefit withdrawals, the most important financial decision many workers and retirees will face in their lifetime and an area of documented abuses.

It provides an exemption for sales-based advisers that enables them to continue receiving commissions, 12b-1 fees, and other forms of conflicted compensation while holding them to a legally enforceable fiduciary duty to act in the best interests of their customers without regard to their own financial or other interests.

It backs that best interest standard with a requirement that firms eliminate common industry practices that encourage and reward recommendations that are not in the best interest of their customers.

CFA’s letter is here.

NEXT: ERIC suggests taming regulatory burdens and costs.

In its 19-page letter to the DOL, ERISA Industry Committee (ERIC) expressed concern that the new rule will increase regulatory burdens and costs, and create uncertainty for plan sponsors and participants, as well as service providers. The organization suggested nine areas where the so-called fiduciary rule could be improved. Among them:

The DOL needs to clarify who qualifies as a fiduciary. “The regulation should be much more clear about which employees from a plan sponsor can offer authoritative investment advice,” ERIC says. The committee recommends narrowly defining a fiduciary as an employee whose “normal job duties include providing the investment information.”

The investment education carve-out. The section’s “investment education” provision should be modified to allow plan sponsors to identify certain investment options so that employees with varying levels of investment knowledge can participate.

A suggestion is not a recommendation. ERIC recommends narrowly defining a recommendation about investment advice to exclude activities that do not constitute an endorsement of, or encouragement to, invest in a particular way.

Call-center employees are not investment advisers. Employers should not incur liability for the investment advice provided by third party call center employees who provide investment advice. In a recent survey of ERIC members, 64% of respondents said they do use third parties to provide 401(k) advice. And 74% of them provide it as a bundled service contract with third party administrators.

ERIC’s letter is here.

Empower (formerly the retirement plan services businesses of Great-West Financial) is worried about unforeseen consequences. In its 19-page letter, it says it has grave concerns “that the current regulatory proposal will have the unintended consequence of limiting access for those individuals most in need of guidance.”

The firm points to what it sees as a bias toward fee-for-service compensation arrangements, apparent in the structure of the rule and in the best interest contract exemption, that would be “particularly burdensome” for small account holders, most of whom rely on broker/dealers and call centers for guidance, Empower contends.

The American Retirement Association reiterates its support of aligning the interests of retirement plan advisers to individual retirement investors through a best interest standard. 

However, the association’s 19-page letter also suggests a number of what it calls “modest, but critical improvements . . .  needed so that the implementation of the best interest standard doesn’t impede advisers and providers from being able to assist plan participants with key concerns, including rollovers or investment education.”

The association calls on five principles in its comments:

• Plan advisers should be encouraged to help plan participants with rollovers, not penalized for providing advice to the plan;
• Restrictions on investment education shouldn’t make participant education harder to translate into practice, and thus less helpful to participants;
• A best interest standard shouldn’t discourage advisers from wanting to work with small businesses;
• The platform marketing carve-out has to extend from the platform providers to third-party administrators (TPAs) and others that actually market the platforms or it won't work; and
• There must be a two-year transition period after publication of the final rule to allow adequate time to transition existing relationships to the new requirements.

The association has proposed a separate exemption for advisers that provide “levelized compensation advice,” so that retirement plan advisers will not be at a competitive disadvantage in helping participants make critical rollover decisions compared with advisers who had no previous relationship with the participant in the plan.

The association's letter is here.