Panelists Debate Need for Re-Proposal of Fiduciary Rule at U.S. Chamber Event


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).

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