From Capital City to Sin City

Graff and Dean covered four topics: the proposed changes to the definition of fiduciary, the Securities and Exchange Commission’s (SEC) study on a “uniform fiduciary standard,” the Deficit Commission proposal, and the effectiveness of 401(k) plan for retirement readiness.

Discussing the definition of fiduciary changes, Graff outlined that under the proposal, an adviser would be considered to be providing ERISA investment advice if they adhere to the following: you represent that you are acting as an ERISA fiduciary; you’re otherwise a fiduciary under ERISA section 3(21) as a result of exercising discretion over the plan or its assets; you provide advice as a registered investment adviser (RIA), you provide advice with the understanding that the advice may be considered when making decisions regarding the investment of plan assets, and lastly, the advice will be individualized based on the needs of the plan, fiduciary or participant.

These changes, Graff said, would also change the definition of ERISA investment advice. It would no longer need to be “recurring” or serve as a “primary basis” for decisions. If it’s “considered” and “individualized” it’s advice; this could potentially impact brokers significantly. Graff touched on the proposed exemption if a recipient knows the adviser’s interests are “adverse;” a term that has stirred much controversy, Graff said.  When he spoke at the Department of Labor (DoL) hearing last week, he strongly urged the regulators to get rid of such a negative-sounding word (see “Subtracting ‘Surprise’ from the Equation”). 

With the flood of comments the DoL has received regarding the proposal, both Graff and Dean believe it will have to re-issue the proposal. (The comment period was actually extending by 15 days; see “EBSA Extends Comment Period” for details.)

SEC Study on Adviser Standard 

The SEC wrote the study for Congress, which was authorized by the Dodd-Frank Wall Street Reform Act. It recommends a “uniform fiduciary standard,” which would require all advisers and broker/dealers (B/Ds) to act in their customer’s best interest. However, Graff pointed out, it would not preclude commission-based compensation, so long as conflict is disclosed. The report recommended a “duty of loyalty” to be fashioned under the existing Advisors Act standards. A timetable was not included in the report, and two Republican commissioners currently oppose the suggestions made in the report.

Dean said the SEC and DoL are both trying to solve the fiduciary riddle.  The SEC report didn’t offer what it thinks would be best, only suggestions for Congress to consider. Several organizations have examined the SEC study, see "SPARK Examines SEC Fiduciary Study."

Deficit Commission Proposal 

Graff outlined how the proposal brought forth by President Obama’s National Commission on Fiscal Responsibility and Reform would affect the tax incentives retirement plans currently enjoy. The “0 Plan” option would raise tax revenue by 21% of GDP. All tax preferences, including retirement savings incentives, would be eliminated. The plan would get rid of special rates for capital gains and dividends as part of the income tax. There’s also the “86-like” option, which would reduce preferences (broaden the base) with 15%, 25%, and 35% individual rates and a 26% corporate rate. ASPPA expressed its concern about the proposal as soon as the report came out (see "Retirement Industry Reps Blast Fiscal Commission Report").

Graff said ASPPA has come up with four proposals to expand coverage of retirement savings plans to more people. The ideas include an auto-IRA option, a new safe harbor, fiduciary relief for small employers, and improvements to multiple-employer plan rules.