Fiduciary rule change would heap on costs, says SIFMA exec

Price of switch to advisory fee model underestimated, association claims

Mar 1, 2011 @ 3:58 pm

By Darla Mercado

The Labor Department's push to expand the definition of who's a retirement plan fiduciary threatens to heap additional costs on broker-dealers and IRA holders as firms will have to shift accounts to an advisory fee model, according to a SIFMA executive.

“The cost to [individual retirement account] holders has been greatly underestimated and the emphasis has been misplaced,” Ken Bentsen, executive vice president for public policy and advocacy for the Securities Industry and Financial Markets Association, said at a Labor Department hearing in Washington today. The DOL is hosting a two-day hearing to gather comments on its proposed rule, which would apply to anyone who provides retirement plans advice for a fee. Currently, the agency goes by a five-part fiduciary test that it says had allowed service providers, brokers and others to skirt the law and provide off-the-cuff advice to retirement plans.

The proposed change would affect retirement plans and IRAs.

If broker-dealers and registered representatives overseeing their share of the $4.3 trillion IRA market were subject to fiduciary duty, they would be given two choices: either stop providing services to IRAs or convert the accounts from a commission-based model to an asset-based model, Mr. Bentsen said.

“For small IRAs with limited trades, the asset-based account is going to cost more,” he added. “That's contrary to the intent of the rule, which is supposed to be to the benefit of the beneficiary.”

He also noted that the proposed rule had no exemption that would allow fiduciaries to sell securities, fixed income or other assets on a principal basis — in which a firm buys securities initially for itself and then sells them to clients with a mark-up — to fiduciary accounts, and that as a result, firms would have to trade away. That would lead to a commission on the trade, plus the mark-up.

Timothy Hauser, an associate solicitor at the DOL, countered SIFMA's objections. “With respect to principal transactions and fixed-income securities — those are areas where there are direct conflicts of interest between broker-dealers and customers, aren't they?” he asked. “To the extent you're selling the product yourself in a market that's thinly traded, there's a potential to take advantage of the customer.

“Why shouldn't we be in a position to create exemptions that put some conditions on your members and unsophisticated investors?” asked Mr. Hauser.


What do you think?

View comments

Recommended for you

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Broker protocol: Indecision over recruiting agreement is rampant

Ruckus over recruiting agreement has even wirehouse lifers wondering if it's time

Cetera reportedly exploring $1.5 billion sale

The company confirmed it's talking to investment bankers to 'explore how to best optimize [its] capital structure at lower costs.'

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print