Err on the side of caution with DOL fiduciary rule, Phyllis Borzi advises

New regulation has broad reach, so when in doubt, use the best interest contract exemption, assistant secretary says

May 24, 2016 @ 4:24 pm

By Liz Skinner

DOL fiduciary champion Phyllis Borzi said her agency will help work through specifics that aren't covered in the new rule requiring retirement advice to be delivered in a client's best interest. But firms with questions about particular sales practices that aren't mentioned in the principles-based regulation should probably err on the side of caution, she said.

“This is a broad rule. It's intended to sweep broadly,” she told those attending an event in Philadelphia hosted by the Institute for the Fiduciary Standard on Tuesday. “When in doubt, assume that you're supposed to be under the best interest contract exemption.”

The DOL regulation requires advisers to pledge to act in the best interest of clients when discussing retirement assets such as 401(k)s or individual retirement accounts. It mandates that clients sign a best interest contract exemption if advisers are going to be compensated with commissions on certain products and in other situations.

Assistant Labor Secretary Borzi, largely considered the architect of the rule that was six years in the making, said any exemption to the rule is going to be construed “extraordinarily narrowly.”

In crafting the rule, the DOL tried to think about it as an incremental reform, recognizing there will need to be more, said Ms. Borzi, who heads up the Employee Benefits Security Administration.

“I'll be long gone while you all are still working on these issues, and that's the way it should be,” she said.

(More: Coverage of the DOL rule from every angle)

She said that hopefully the Securities and Exchange Commission will move forward with its own fiduciary requirement for all investment advice.

Former SEC Commissioner Luis Aguilar, who received an award from the Institute for supporting a fiduciary standard for investment advice, said his agency should have passed a fiduciary regulation years before the DOL retirement advice rule even came up.

"I commend Phyllis Borzi, and I wish she had been the chair of my agency," he said.

SEC Chairwoman Mary Jo White announced in March 2015 that she favors a uniform fiduciary standard for retail investment advice, however, she's also said she can't make it so on her own. Proposing a regulation requires the support of at least three of the five commissioners, and the two Republican commissioners have opposed it over the years and Democratic support has been spotty.

The SEC said in its latest regulatory agenda that it plans to propose rules raising investment advice standards next spring.

Ms. Borzi said during the next couple of weeks her agency will put out for public comment an update to the annual financial disclosure form 5500 for retirement plans that would require a copy of the information disclosed to participants about fees. The goal is for third parties to be able to build a tool comparing fees of different plans.

“Watch this space,” she said.

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