Treasury encourages DOL to consider fiduciary-rule harm

Report reflects Trump administration's skepticism of investment-advice regulation for retirement accounts

Oct 27, 2017 @ 2:04 pm

By Mark Schoeff Jr.

A new Treasury Department report outlines potential harm being caused by the Labor Department's fiduciary rule and tells the agency to keep those consequences in mind while it reviews the regulation.

Administration skepticism about the DOL rule has been evident since President Donald J. Trump in a Feb. 3 memo directed DOL to reassess the measure. Now, that sentiment has been formally recorded in a Treasury paper on the asset management and insurance industries.

The document says Treasury has heard "stakeholder concerns" that the DOL rule — which requires brokers to act in the best interests of their clients in retirement accounts — could increase the cost of financial advice; create an "uneven playing field" for certain products, strategies and advice models; result in higher fees for individual retirement accounts; and create regulatory inefficiency.

"Treasury encourages DOL to consider these stakeholder comments along with the many other public comments it receives as it continues to evaluate the fiduciary rule," states the report, which is one of several regulatory reviews Treasury is writing in response to an executive order from Mr. Trump. "Treasury believes that conflicts of interest should be addressed in a manner that does not disrupt the free functioning of the markets and access to financial services."

Advocates for the DOL fiduciary rule say the Treasury report telegraphs the Trump administration's intention to substantially change the rule.

"It's an excellent summary of the mistaken and false arguments we've been hearing for the last 30 months from the industry," said Knut Rostad, president of the Institute for the Fiduciary Standard. "This report will have significant influence to allow the administration to essentially gut the DOL rule."

The regulation was partially implemented in June. Now the DOL is seeking an 18-month delay in implementation of its enforcement mechanisms while it conducts its study. Treasury said it supports that delay.

The Treasury report only focuses on what detractors claim about the rule, according to Barbara Roper, director of investor protection at the Consumer Federation of America. Supporters of the regulation say it mitigates broker conflicts that result in the sale of inappropriate high-fee products.

"It ignores all the evidence of positive developments resulting from the rule and reiterates the same tired talking points about its supposedly harmful impact," Ms. Roper said. "There is nothing about it I find the least bit surprising or unexpected."

An industry opponent of the DOL rule praised the Treasury report for crystallizing how small investors could suffer under the regulation.

"It is happening in the marketplace," said Jill Hoffman, vice president of government affairs at the Financial Services Roundtable. "We have been predicting it, and it is now the outcome. FSR supports a best-interest standard that's done right, and this one's not done right."

Treasury said the SEC and DOL should work together on advice standards for retirement and other investment accounts, a step that is already being taken. It also said both agencies should work with state insurance regulators on advice rules for annuities.

"Given the size and scale of the annuities market, federal regulators should coordinate with the states in order to achieve consistent standards of conduct across product lines," the Treasury report states.

Annuities are a popular way to produce a retirement income stream, but also often come with high risk and high cost.

"We would hope [the Treasury directive] would enhance the oversight of these products," said Jim Allen, head of capital markets policy for the Americas at the CFA Institute.

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