DOL Delays Proposed Change to Fiduciary Duty Rule for Financial Advisers
June 5, 2014 by Jeff Jeffrey
WASHINGTON – A recent decision by the U.S. Department of Labor to delay a proposed changed to its fiduciary-duty rule is drawing praise from the Insured Retirement Institute.
The proposed change would extend the fiduciary duty requirement to broker-dealers, including agents and brokers who advise consumers on retirement plans.
DOL previously said it would finalize a revised fiduciary-duty rule by August. But in a recent post on the Office of Management and Budget’s website, the deadline was pushed back until January 2015.
IRI President and Chief Executive Officer Cathy Weatherford said in a statement her organization continues to be concerned the proposed rule change could have unintended consequences that may deprive lower- and middle-income Americans from accessing affordable retirement planning services and advice.
“This new rule-making timetable will provide more time and a new opportunity to work with the administration to ensure that no rule proposal will prevent access to the important advice provided to Americans by their financial advisers,” Weatherford said. “By working together, we can protect the client-adviser relationship and help ensure that all Americans have the opportunity to attain a financially secure and dignified retirement.”
The rule change was first introduced in 2010, but it was quickly withdrawn amid widespread criticism in the financial industry.
In October, the U.S. House of Representatives passed industry-backed legislation designed to delay two rules affecting how broker-dealers and investment advisers provide advice to investors.
HR 2374 was aimed at moves by the U.S. Department of Labor and the Securities and Exchange Commission to implement two separate rules that would strengthen advice standards for retirement plans. HR 2374 would require the DOL to wait until 60 days after the SEC finalizes a fiduciary rule before it can release its own regulation. The bill would also impose additional requirements on the SEC before the agency can release its rule. Those requirements include determining that any rule would not harm consumers or restrict their access to investment advice, as well as completing a cost-benefit analysis.
The bill has so far failed to gain traction in the Senate. However, President Barack Obama has promised to veto the legislation if it reaches his desk.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 grants authority to the SEC to expand the fiduciary standard currently applied to investment advisers to cover broker-dealers for retail investing. The DOL has jurisdiction over workplace retirement plans and individual retirement accounts.
Both federal agencies proposed changes to the fiduciary duty standard as a way to protect workers and retirees against receiving conflicted investment advice.
But the IRI has argued if the DOL’s version of the rule were to be implemented, all financial advice provided through full-service brokerage accounts would be illegal (Best’s News Service, April 17, 2014).
A recent study by Quantria Strategies found the DOL rule change would create fiduciary responsibility for financial service providers that will limit access to assistance provided by call centers and broker-dealers when terminating employees face plan distribution decisions. These regulations “may eliminate access to call centers and broker-dealer assistance with respect to distribution advice,” the study said.
Weatherford said the proposed rule change may be a solution in search of a problem. She said IRI’s research has “overwhelmingly” found that most investors aged 51 to 67 are satisfied with their relationship with their adviser.
IRI said eight in 10 said they are better prepared for retirement because of their financial adviser. Less than 5% of investors share the view used to justify the proposed rule, with less than 1% strongly agreeing, the organization said.
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)
