SIFMA's advice to DOL on the fiduciary rule: Start over

Industry heavyweight argues the proposal would limit access to investment advice

Jul 20, 2015 @ 2:07 pm

By Mark Schoeff Jr.

If a major industry trade group has its way, the Labor Department would rip up its proposal to raise investment advice standards for brokers working with retirement accounts and start over.

In comment letters filed Monday about the DOL fiduciary measure, the Securities Industry and Financial Markets Association argued the proposal would limit access to investment advice, and make receiving and giving it much more expensive.

“This rule will make it more difficult for Americans to save,” SIFMA president and chief executive Kenneth E. Bentsen Jr. told reporters Monday. “It will raise costs for many American savers. It will cut off access to what we believe is very vital education and guidance many investors need.”

The organization filed a total of eight comment letters on various aspects of the DOL rule. The SIFMA letters follow a July 17 letter from the Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator, that also criticized the rule.

The proposal, which would require brokers to act in the best interests of their 401(k) and individual retirement account clients, was introduced in April with White House backing. Comment letters are due by Tuesday. There will be public hearings in August.

(More: "Where key players align in the DOL fiduciary fight")

In hundreds of pages of comments, SIFMA criticized the scope of the DOL rule, the best-interests contract exemption designed to give brokers latitude in their compensation and the DOL's cost-benefit analysis. A survey of SIFMA members by Deloitte estimated that the startup costs for the proposal would total $4.7 billion and annual costs would be $1.1 billion for medium and large firms.

And Mr. Bentsen said that under federal retirement law, a final rule could not be tweaked later through exemptive relief if parts were found not to work.

“I have suggested to them that they do go back and do a re-proposal,” Mr. Bentsen said. “They do a concept release; they take comments in to figure out what they're doing. This is a massive rule making with material consequences to a huge component of the retail investment sector, as well as the plan sector.”

A proponent of the DOL rule said SIFMA and Finra are not serious about establishing a best-interests standard for investment advice — a bar that investment advisers currently meet. Brokers are held to a less stringent suitability standard.

“Both the SIFMA and Finra letters make clear that their much-touted support for a fiduciary standard is dependent on that standard's not requiring them to make any significant changes in the industry's current business practices,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “DOL recognizes it is not enough to give lip service to a best-interests standard.”

Mr. Bentsen said SIFMA has supported a best-interests standard since 2009.

“We were for it before DOL was for it,” Mr. Bentsen said. The problem is “all of the conditionalities … on top of it” in the DOL proposal.

“The department, we believe, goes frankly beyond, in some cases, its authority in conflict with existing securities law in trying to establish a prescriptive, burdensome approach that goes well beyond what a best-interest standard would be or should be,” Mr. Bentsen said.

In hundreds of letters, the DOL is likely to get a lot of guidance from interest groups. For instance, there will be calls for changes to the disclosure requirements surrounding the best-interests contract.

“What we're trying to do is find ways to leverage disclosure that is already provided,” David Bellaire, executive vice president and general counsel of the Financial Services Institute, told reporters last week.

The Financial Services Roundtable said it would suggest in its comment letter a simpler approach for compensation flexibility than the best-interests contract.

In a comment letter filed last week, Voya Financial Inc. offered a customer's bill of rights as an alternative.

In a meeting at the Securities and Exchange Commission last week, a DOL official said the agency was open to making changes to the proposal.

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