Answering the questions raised by the DOL’s fiduciary proposal

Since President Obama’s public statement of support for the Department of Labor’s fiduciary rule, the proposal rightly has been drawing a tremendous amount of attention. Considering the profound impact this rule could have on Main Street clients – potentially pricing millions of small and midsize investors out of quality, affordable financial advice – our industry has every reason to watch the developments surrounding the DOL’s proposal with acute interest.
While the revised rule is under review by the Office of Management and Budget, much of the discussion on the DOL’s effort has been of the “what if” variety: What if the rule has not changed substantially from the 2010 version? What if the DOL’s proposal conflicts with existing regulations?
Until the revised rule is released for public comment, there is simply no way to know how this proposal might impact our industry, or how the debate over its future might unfold.
With this in mind, I’d like to take a step back to provide an update on the measures the Financial Services Institute is taking to engage with OMB and the key points we hope both regulators and members of our industry will bear in mind as this crucial issue develops in the months ahead.
1. Many in the financial services industry, including FSI, have been concerned that the DOL’s rulemaking process may not adequately take into account the multiple layers of regulation that already exist at both the federal and state levels to protect retirement savers. Part of OMB’s role in reviewing new rule proposals is to ensure that they fit within the existing regulatory structure to address a clear, unsolved problem without creating conflicts with current rules and without generating unnecessary costs.
We expect that OMB will make every effort to clarify the public harm that would be rectified by the DOL’s fiduciary rule and work to minimize any of the proposal’s potential unintended consequences as part of its review process.
2. Regulators should ensure that every stakeholder that could be impacted by the DOL’s rule is heard. The range of constituencies that could be impacted is vast, including not only current retirees and pre-retirees, but every current and future individual retirement account investor in the nation, as well as the broad array of financial professionals who serve them.
Just as FSI and others throughout our industry will take a careful, measured approach to reviewing and analyzing the revised proposal once it is released by OMB, the DOL’s rulemaking process should also allow for a careful and thorough consideration of the views of all these groups. The only way to ensure that the final result of this effort is an effective, carefully targeted and constructive rule is to listen to and incorporate the input of the people who will be most affected by it.
3. The next few months will be crucial to the future of your business. For many financial advisers, policy issues in Washington sometimes seem so far away or opaque that it can be easy to put off getting involved on a particular rule proposal or bill. This is understandable, given that advisers are very busy people with complex businesses to run and clients to serve.
(More: DOL chief Perez says new fiduciary rule will distinguish between investor education and investment advice)
While the alphabet soup of different agencies and offices involved in the DOL’s fiduciary rulemaking process may seem confusing or arcane, the fact is that within the next few weeks or months, a new rule will be introduced that could drastically change the way advisers interact with and serve their clients. This rule will not be subject to congressional debate or approval. The only formal review it will undergo is the one occurring now at OMB and, in coming weeks, the public comment period.
Financial advisers can prepare themselves to engage on this issue by staying in touch with industry groups such as FSI, reading up on the DOL rule in InvestmentNews, and taking every opportunity to establish relationships with their elected representatives in Washington.
Once the OMB releases the DOL’s revised proposal for public comment, FSI will take a very careful, thorough approach to reviewing and assessing the new version of the rule before developing a position on it. Once we have had a chance to conduct our review, we will inform and educate our members and call on our financial adviser members to become engaged in this process. Advisers’ grassroots involvement will be vital to ensure the long-term health of their businesses and protect their client relationships.
(More: SIFMA criticizes White House for ignoring existing regulations while pushing for DOL fiduciary rule)
The questions surrounding the DOL’s fiduciary proposal have been building for years now, ever since the initial version of the rule was withdrawn due to congressional objections – and thousands of FSI members writing letters and advocating on behalf of their clients – in 2011.
Now that the rule has moved forward in the review process, advisers and others are understandably anxious about what it might mean for our industry. With the strong voice of our members and the patience and perspective we have developed as a result of engaging on this issue since it was first introduced in 2010, FSI – and our industry – are well-positioned to work constructively with the DOL and other government agencies to protect independent financial advisers and their clients from the potentially destructive unintended consequences that could arise from a rushed or poorly considered rule.
Dale Brown is president and chief executive of the Financial Services Institute Inc.