DOL Fiduciary Proposal Gets Mixed Reviews From Regulators


The Financial Industry Regulatory Authority and current and former officials with the Securities and Exchange Commission land on both sides of the debate on the Department of Labor's fiduciary proposal—whether to push it to completion or to kill it.

SEC Commissioner Daniel Gallagher, a vocal critic of the proposal (RIN 1210-AB32), said in an excoriating comment letter that the DOL rule, which he said would likely be finalized as is, “will harm investors and the U.S. capital markets.”

“Proving that the nanny-state is alive and well, DOL is proposing to substitute its judgment for that of investors in deciding the type of financial professional and fee structure all investors should use when investing their retirement savings,” Gallagher said.

The emphasis on “all” is Gallagher's.

SEC Chairman Mary Jo White announced in March that the commission will develop a stricter uniform fiduciary standard for brokers, after President Barack Obama directed the DOL to send its proposal to the Office of Management and Budget for review.   

Gallagher said that observers were “delighted” when White announced that the SEC was moving forward, but that “those who believe that the SEC can stave off the heavy hand of DOL are chasing fool's gold.”

The DOL should “scrap” its proposal and instead work with the SEC to address the department's concerns about broker fees for retirement accounts, preferably focusing on a disclosure regime rather than a fiduciary standard, Gallagher said.

Gallagher announced his resignation from the SEC in May, but will remain on the commission until a successor is confirmed. With the SEC at only a nascent stage in working on its fiduciary guidance, Gallagher will presumably not be on hand when its proposal is released.


Marcia E. Asquith, senior vice president and corporate secretary for FINRA, gave qualified support for the DOL's efforts.

“The Department should be commended for its efforts to establish a best interest standard,” Asquith said. “The Proposal, however, does not meet some of the minimum criteria for such a standard.”

To avoid creating a “panoply of regulatory regimes” that would apply to different accounts served by an adviser to a single client under the current proposal, FINRA offered five recommendations:

• amend the rule to clarify the scope and meaning of the best interest standard;

• either adopt stringent procedures that address the conflicts of interest arising from differential compensation, or pay only neutral compensation to advisers;

• base the rule on existing principles in the federal securities laws and FINRA rules;

• streamline the best interest contract exemption (ZRIN 1210-ZA25) and principal transaction exemption so that they only impose conditions that restrict conflicts of interest, and eliminate the ambiguous conditions that will not meaningfully address those conflicts; and

• clarify the effects of non-compliance with the prohibited transaction exemptions and the extent that remedies can be defined in the BIC exemption contract.

Excerpted from a story that ran in Pension & Benefits Daily (08/12/2015).

Design benefit plans and respond quickly and confidently to a range of potential issues with a free trial to the Benefits Practice Resource Center.