The Department of Labor's fiduciary rule is a necessary step to protect retirement savers from making investments that aren't suited to their needs, a law professor said during a panel discussion at the U.S. Chamber of Commerce.
Norman P. Stein, a law professor at Drexel University, said during the Feb. 20 program that unless broker-dealers giving advice to defined contribution plan participants are made subject to conflict-of-interest standards under the Employee Retirement Income Security Act, they could end up buying investment products that amount to “an ugly doll,” rather than a quality doll.
He offered the contrarian voice in the debate, in which his co-panelists said that the prohibited transaction exemptions expected to be included in the fiduciary rule would be unlikely to offer the flexibility that advisers and broker-dealers need to conduct business.
Stein said that once, in trying to explain to a neighbor the concept of the DOL's project to define the fiduciary standards under ERISA, he told her that she should try to imagine shopping for a doll, and that if the clerk is compensated for selling a cheap and ugly doll, the clerk has a conflict of interest that doesn't benefit the buyer
Jacob K. Javits, the Republican New York senator considered by many the “father of ERISA,” defended ERISA's prohibited transaction provisions, calling conflict of interest “a great evil,” Stein said. Javits referred not to individuals but to the conflict itself, Stein said.
“Good people subject to conflict of interest sometimes do bad things,” he said.
Stein said that what he's looking forward to in the expected proposal is that it recognizes conflicts and that conflicts do influence people, and to figure out compensation structures that don't give people “perverse incentives” to promote products that aren't a good fit for the investor.
Rope Through a Needle
At the event, the Chamber released a white paper, “Using PTEs to Define a Fiduciary Under ERISA: Threading the Needle with a Piece of Rope,” in which it said that the DOL's prohibited transaction regime—in which it prohibits transactions unless they are allowed through exemptions—“may unnecessarily eliminate choices and make it difficult to find new ways to better serve investors.”
Furthermore, the Chamber said that the prohibited transaction regime suffers from three main problems, including:
• the process is lengthy and protracted;
• the regime is burdened with conditions, limitations and requirements; and
• it is generally ineffective in addressing the needs of the employee benefits community.
Vanessa A. Scott, a partner at Sutherland, Asbill & Brennan LLP in Washington, said in an earlier panel discussion at the Chamber event that the DOL can take up to two years to thoroughly investigate a prohibited transaction request. By the time the applicant receives the PTE—if it does—it might not even apply, she said.
Excerpted from a story that ran in Pension & Benefits Daily (02/23/2015).
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 firstname.lastname@example.org.
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 email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)