Advisers asking DOL for clarification on fiduciary rule's impact on compensation

Agency official discusses top adviser questions and says additional guidance is on the way

Jul 18, 2016 @ 2:06 pm

By Mark Schoeff Jr.

More than three months after the Labor Department released a final rule to raise investment advice standards for retirement accounts, some advisers are expressing worry about how the measure will affect pay incentives, according to an agency official.

“The biggest concern people have probably has to do with how are they going to change their incentive structures,” DOL deputy assistant secretary Tim Hauser told reporters on the sidelines of an Investment Management Consultants Association conference in Washington on Monday.

A member of the IMCA audience asked how the rule would affect firms that offer a limited menu of investment products that is shaped by the sales incentives the firm receives, such as revenue sharing or 12b-1 fees.

Mr. Hauser responded that the agency hopes that required website disclosures “will do some of the lifting on that.”

“It will focus people's attention on what these relationships are with these third parties that pay the firm,” Mr. Hauser said. “And also maybe make people nervous in some cases about just what it is they're taking that money for and can they defend it to their customers.”

But advisers are still digesting the rule and tend not to approach the DOL with specific questions about pay policies.

“The questions we get, a lot of them are people saying, 'We like what you said at such-and-such a place in the preamble, could you put that in a separate Q&A to highlight it,'” Mr. Hauser said.

Other queries are technical and related to individual firms in areas such as the format of training and travel programs.

(More: The most up-to-date information on the DOL fiduciary rule)

Advisers also are wrestling with the so-called best interest contract exemption in the rule. Under the provision, advisers can collect non-level fee compensation as long as they sign a legally binding agreement with clients to act in their best interests.

“Pretty much every aspect of the best-interest-contract exemption and the rule somebody has a question about, if only just to confirm their understanding,” Mr. Hauser said.

In another session at the IMCA conference, David Blass, general counsel at the Investment Company Institute, said the mutual fund industry is still contemplating how the DOL rule will affect 12b-1 and other marketing fees.

“There's still a lot of discussion,” he said. “We're not settled on what we're going to do.”

In his remarks, Mr. Hauser reiterated that the agency wants to hear from financial advisers about any struggles they're experiencing trying to understand the rule and how to comply.

“We're still open for business,” Mr. Hauser said. “We're still talking to people.”

He said the agency will soon release guidance about the rule, but declined to give a specific date.

Another audience member asked Mr. Hauser whether rollover recommendations could be made outside the best-interest contract as long as an adviser didn't tell a client how to invest the retirement assets.

“If you recommend to someone they roll money out of the plan, that's going to count as fiduciary advice,” Mr. Hauser said. “You need to be prudent in making that recommendation.”

At one point, the soft-spoken and unflappable Mr. Hauser seemed to reach his breaking point on assertions that the rule is too long and too complex.

He responded to an audience member by saying the person had raised two questions and “one erroneous supposition.” He held up hard copies of the rule and the best-interest contract exemption.

“This is not a 1,000-page rule,” Mr. Hauser said. The rule itself is smaller, but is padded with a cost-benefit analysis and other supplemental matter.

Afterwards, he laughed off the exchange.

“I was worried that [the presentation] would be a long slog for the audience,” Mr. Hauser said. He was glad of the opportunity to make a colorful aside.


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