U.S. Labor Department offers glimpse into new fiduciary plan
Tom Williams/Roll Call via Getty ImagesPhyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration.
By Sarah N. Lynch

WASHINGTON -- A U.S. Department of Labor official has offered a sneak peek into a controversial plan to tighten regulation of retirement financial advisers, saying it will both minimize conflicts and still permit brokers to earn a living.

"Whatever business model you want to use is perfectly fine with us, as long as it is not a business model that is entirely based on conflicts of interest," Phyllis Borzi, the assistant secretary of the Employee Benefits Security Administration, said in remarks Wednesday at an event held by the Financial Services Roundtable.

"There are lots of different ways that people get compensated that are called commissions, and we will ... propose ways that you can still be compensated," she said. "That will be part and parcel of the proposal."

Borzi's remarks Wednesday came more than two years since the Labor Department scrapped its first draft rule in September 2011 amid withering criticism from the financial services industry.

The department has been working now for several years to overhaul its rules governing how advisers provide advice to clients in workplace retirement plans such as 401(k)s and individual retirement accounts.

Borzi wants these advisers to be held to a higher "fiduciary" standard, meaning they must put their clients' interests ahead of their own.
The idea behind the plan is to reduce potential conflicts of interest because advisers who offer rollover advice to retirees stand to benefit financially.

The plan generated stiff opposition from the industry, which said it would drive up costs, curb commissions and ultimately hurt customers.

Critics also complained the Labor Department's rule could conflict with a separate fiduciary-rule making effort under consideration at the Securities and Exchange Commission that would harmonize rules between broker-dealers and investment advisers.

The measure has proven so controversial that last October, members of the Republican-controlled U.S. House of Representatives passed a rule that would delay the department's rulemaking until the SEC acted first.

However, Borzi made it clear Wednesday that her department is well ahead of the SEC at this stage, and is hoping to release a new draft as soon as August.

"August is our goal," said Borzi. "Maybe we will be ready then. Maybe we won't." But the new plan will be "very different" from last time, she added.

'Reworked' Draft

While the Department of Labor has long been expected to release a new version of the fiduciary rule, its unveiling has been delayed and the industry has been clamoring for details on how the new plan will differ from the first version.

On Wednesday, Borzi told the audience to expect a result that is "significantly reworked."

Federal retirement plans generally prohibit certain types of transactions, typically to prevent self-dealing and conflicts by people who manage the plan, among others.

The Labor Department, however, can carve out exceptions to those rules.

Borzi said Wednesday that the new proposal will broaden exemptions for activities that would otherwise be considered prohibited transactions.

Those expansions will include new language related to revenue sharing -- a practice in which investment companies with funds in a 401(k) may pay plan providers for services like research. Those amounts don't always show up clearly as plan costs.

The scope of the forthcoming proposal related to revenue sharing, however, was unclear.

Fee issues, including revenue-sharing, has been a strong area of concern for the Department of Labor.

Some critics have said revenue sharing may give rise to conflicts of interest, especially if the specific costs aren't properly disclosed.

Borzi said several other changes will also be made.

It will, for instance, strive to better differentiate between what is considered investment education and investment advice,
and it will also provide a lot more economic analysis to help justify the rule -- something critics originally said was lacking.

In addition, Borzi said the new rule will also try to make it clear that not every broker would be transformed into a fiduciary, and that those who just want to sell products can do so as long as they do not cross the line.

While some of these changes are designed to ease concerns, Borzi also warned the industry that it may still not be satisfied with all of the changes and should be prepared.

"We will not be surprised if what people say is we haven't gone far enough," she said.

"Many people have come in during this public process and simply said, 'Wave a magic wand and say what we do today is OK tomorrow.' Well, that's not the way things work."

Uncertain Future for SEC Rule

SEC Republican Commissioner Daniel Gallagher said at the event Wednesday it is still very unclear whether the SEC will ultimately move on its own fiduciary rule.

The SEC has been collecting data to better understand whether customers are confused by the different legal standards that apply to brokers and advisers.

Under current law, brokers are only required to offer products "suitable" to clients, while advisers are held to the higher fiduciary standard.

So far, the SEC hasn't opted to propose regulatory changes.

Gallagher told the audience there still is a question as to whether a majority of the five-member commission will agree to press ahead with new rules to require brokers to act as fiduciaries.


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hsenpfeffer

Till we eliminate about 90 percent of the salestrash parasites our economy cannot improve. We cannot afford all the overhead of carrying the dead weight of commission grubbing salestrash who do nothing but add cost and produce absolutely no value.

March 15 2014 at 2:20 AM Report abuse +1 rate up rate down Reply
nikkitytom

Good luck guys. As soon as my bank noticed I haad some savings they encouraged me to see an "advisor". This jerk arrived armed with a portfolio which included nothing but ANNUITIES .... and I played Columbo for a while just to get his goat. Then I laughed him out of the room.

Ban the sale of Annuities ... and you have a good idea.

March 15 2014 at 2:09 AM Report abuse +3 rate up rate down Reply
kensucharski

When is the long arm of government going to end?
What's next, healthcare, team logos, green gas, no gas, no money down housing, telling other governments what to do, same sex marriage, pre-K schooling, how much to pay your employees,
ooops - wrong planet.

March 14 2014 at 8:50 PM Report abuse rate up rate down Reply
pe12427

Some of the so called financial advisers, particularly those connected with various retirement accounts, are little more than thieves!These financial managers get their yearly management fees regardless of the performance of their managed portfolios. My investments increase in value, they take their percentage - my investments loose value and they still get a percentage. Would it not be nice to have a job where you are rewarded regardless of your performance.

March 14 2014 at 7:30 PM Report abuse +2 rate up rate down Reply
Robert

Crooks are crooks and there is almost nothing the Government or anyone else can do about it.

March 14 2014 at 3:28 PM Report abuse rate up rate down Reply
1 reply to Robert's comment
hsenpfeffer

So you are saying we should have no laws and no one should be arrested for stealing because the government can do nothing about crooks? Congratulations, you win the award for stupidest argument ever.

March 15 2014 at 2:22 AM Report abuse rate up rate down Reply
Robert Beuttler

When are you people going to mind your own business and leave our business alone.

March 14 2014 at 12:52 PM Report abuse -2 rate up rate down Reply