The final version of the Department of Labor's conflict-of-interest rule will be thoughtful and balanced, Labor Secretary Thomas E. Perez said at an event hosted by the Brookings Institution.
While Perez was reluctant to reveal what specific revisions might be made before the fiduciary rule (RIN 1210-AB32) is eventually finalized, he said that he is “confident” that there will be changes made to clarify and improve upon the proposal while addressing “legitimate” concerns that have been brought to the DOL's attention, he said Oct. 16.
“This isn't about bad people doing bad things. It's about good people operating under a structurally flawed system where the incentives of the adviser are not properly aligned with the best interest of the customer,” he said.
Perez added that without a best-interest standard, it's very easy for advisers to benefit from hidden fees and “too easy for working families to be unwittingly victimized by the corrosive power of fine print.”
The DOL's proposed rule, released in April, would require brokers to work under a fiduciary duty when working with retirement investors, meaning they would have to act in the clients' best interest. Presently, they are held to a “suitability” standard, meaning they can sell products that generally fit an investor's needs and tolerance for risk.
While there is agreement that the current definition of a “fiduciary” under the Employee Retirement Income Security Act is too narrow, the DOL's proposed rule goes to the opposite end of the spectrum, Kent A. Mason, a partner at Davis & Harman LLP in Washington, said during a panel at the same event.
The debate surrounding the controversial rule doesn't have to do with a requirement to act in the best interest of a client, it has to do with other aspects of the proposed rule that would cut off access to advice for those with small accounts, Mason suggested. This is because without an exemption from ERISA's prohibited transaction rules, the “brokerage model is illegal,” and if that's the case, then small accounts will get burned by their advisers.
While the proposed rule technically provides an exemption—the best-interest-contract exemption (ZRIN 1210-ZA25)—many will be unable to take advantage of it during the eight-month period between the date the final rules are issued and when they become effective. This will inevitably lead to the “firing” of small accounts in the summer and fall of 2016, he said.
Though Perez promised changes to the finished product, Mason doesn't prognosticate many substantive changes, saying that in his view, “all of the changes being contemplated are just around the edges.”
Excerpted from a story that ran in Pension & Benefits Daily (10/21/2015).
Gain access to the most reliable source for comprehensive pension and benefits and executive compensation research with a free trial to the Benefits Practice Resource Center.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)