Borzi counters fiduciary criticism calmly

When she walks into a room, it is sometimes necessary to stand up to see Assistant Labor Secretary Phyllis Borzi.
But the regulator knows how to stand tall when facing financial industry opponents.
Ms. Borzi’s willingness to engage in a remarkably forthright way with critics of the fiduciary duty rule that she is championing was on display this week in Washington, where she appeared at a Financial Services Roundtable event focused on retirement security.
She stood alone in defending the pending re-proposal of the rule, which would expand federal retirement law investment advice standards and require more financial advisers to act in the best interest of clients saving for retirement.
Such a change is necessary to protect workers and retirees from conflicted advice as they build their own retirement nest eggs, Ms. Borzi said.
The original measure was proposed in 2010 but withdrawn in the midst of strong backlash from the financial industry, which said that it would impose for the first time a fiduciary duty on brokers selling individual retirement accounts and potentially force them out of the market serving investors with small accounts.
The industry had its Capitol Hill allies prepped to battle with Ms. Borzi at the FSR event.
Rep. Gwen Moore, D-Wis. and a member of the House Financial Services Committee, raised concerns that the first Labor Department proposal — and possibly the next one — would ban commissions and limit investment advice only to those who could afford a fee-only adviser.
“When you say that people cannot be compensated for investment advice, it seems that there would be a whole range of investment products that would provide the greatest yield that would not be available to low-income or moderate-income investors,” she said.
Ms. Moore cited a study of the impact of an investment advice rule in the United Kingdom that showed that the country’s four biggest banks adjusted upward the asset threshold at which they would serve customers.
This report was given to me by a lobbyist in November. I saw on Wedneday that it is also making its way around Congress.
Ms. Moore also stepped up for annuity sales, stressing the need to help people save enough money to finance retirement that may stretch on for decades as life expectancy keeps increasing.
“[Advisers] should not be liable for a fiduciary standard because they’re trying to prepare people to live beyond that point,” she said.
Another lawmaker on the panel, Rep. Blaine Luetkemeyer, R-Mo. and a member of the House Financial Services Committee, echoed an industry argument that the Labor Department must prove investor harm before proceeding with a rule.
“I’m not sure there’s a problem we need to solve,” he said. “Show me where we have a problem that needs to be solved, and I’ll take a look at it.”
The insurance, banking and finance sectors are the top contributors to Mr. Luetkemeyer’s and Ms. Moore’s campaigns this cycle, according to the Center for Responsive Politics.
There is nothing wrong with that. Campaign contributions are a form of free speech, and they often go to lawmakers who say the same things as their backers.
Ms. Borzi gamely answered all the criticism through an opening statement and then, at the end of the event, a question-and-answer session.
The Labor Department re-proposal would not ban commissions, she said.
The U.K. regulatory change couldn’t be compared to what her agency is contemplating.
The new rule would clearly delineate investment education and investment advice, she said.
Ms. Borzi reassured her audience that she is listening to their concerns.
But she also was clear about the need to protect small investors.
“They are entitled to have the maximum amount of the dollars they save to be there for their retirement, not be frittered away on unreasonably high fees and other hidden sources of compensation,” Ms. Borzi said.
“People who hold themselves out as experts, who have a relationship of trust with their clients, need to put their money where their mouths are,” she said. “They need to actually put their clients’ interest first by being held to a legal standard of care that puts the client’s interest first.”
It didn’t take the industry long to fire back. By Wednesday afternoon, a letter was circulating from the Congressional Hispanic Caucus to the Labor Department warning about unintended consequences of the fiduciary-duty rule. On Thursday, the Insured Retirement Institute released a survey that showed that investors are confident that advisers are working in their best interest.
The battle rages on.

Related Topics: Compliance Watch