Phyllis C. Borzi, assistant secretary for the Department of Labor's Employee Benefits Security Administration, doesn't have 21 questions for people who doubt whether the agency's expected re-proposed fiduciary regulations are necessary. She has only three.
Borzi, speaking March 12 at a meeting of the Financial Services Roundtable, addressed her first question to confronting claims that a re-proposal could conflict with legal requirements enforced by other agencies and result in “mass confusion among advisers.”
Borzi asked, “How could a rule clarifying that everybody who gives investment advice is subject to the same legal standard, how can that be even more confusing than the current standard?”
Second, she addressed commenters' concerns that the Securities and Exchange Commission and the DOL need to coordinate their regulatory activities regarding fiduciary responsibilities, saying leaders and staff have been constantly meeting each other and that the two agencies renewed in July a five-year memorandum of understanding on development of such regulations.
“If MOUs, sharing of information, sharing of data, if all the things we're doing isn't enough, what do you think coordination should look like?” she asked.
The SEC has been contemplating whether it will act on an SEC staff report that recommended the commission propose its own rule creating a unified fiduciary standard for investment advisers and broker-dealers providing personalized investment advice to retail clients. SEC Chairman Mary Jo White, a Democrat, said in February that the commission will “intensify” its consideration of the duties and roles of investment advisers and broker-dealers.
Third, Borzi questioned why many people want to kill the re-proposal before it's issued.
“What exactly is the reason, what harm occurs, if we can't even have a debate on these proposed rules?” she asked.
The rule, also known as the conflict-of-interest rule, would expand the definition of “fiduciary” under Section 3(21) of the Employee Retirement Income Security Act.
Rep. Gwen Moore (D-Wis.) said during the meeting that her concern with the re-proposal is that it could have a severely negative impact on the financial advisory industry if the definition of fiduciary is too broad.
“What I'm concerned about is the open-ended definition of fiduciary,” Moore said.
A vague definition of fiduciary could provide that “reliance on any information—and I underline ‘any information'—whether individualized, personalized or not—would lead to liability on the investment adviser.”
The result would have a “chilling impact on investment education,” Moore said.
SEC, DOL Coordination
SEC Commissioner Daniel M. Gallagher, one of the agency's two Republican commissioners, said that it isn't helpful to focus on the DOL's original proposal. He also said that he's looking forward to the re-proposal.
The DOL withdrew the original proposal in 2011 after it met with a firestorm of criticisms.
The re-proposal is scheduled to be released in August, according to the DOL's regulatory agenda. Borzi didn't commit to whether the rules would actually come out this summer.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the SEC authority, but not a mandate, to pursue regulations on fiduciary duty responsibilities for brokers, Gallagher said.
But Gallagher doubted whether the SEC would use that authority. “I have to tell you at this point that I don't think we need to use” that authority, he said. “I'm not sure that a majority of the commission believes that we should use it in any one way,” he said.
The potential harm of an SEC proposal is that “we could literally have the federal government eliminating one option, which is the brokerage account,” he said.
Gallagher also said there isn't a single rule that can describe bad actors, and that the notion that there is one is “folly.”
Borzi said that commenters have said that the SEC should lead the charge on developing regulations in this area.
“Why does it matter who leads and who follows? Isn't the real problem making sure the couple dances well together?” she said.
Gallagher riffed on Borzi's metaphor, saying that “we don't want to be dancing past the burning ballroom.”
The agencies' coordination efforts shouldn't result in the loss of any investment choices, Gallagher said.
The Securities Industry and Financial Markets Association raised the
issue of coordination between the agencies in a March 10 comment letter to the
Excerpted from a story that ran in Pension & Benefits Daily (3/13/2014).
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