Phyllis Borzi says opponents of DOL fiduciary rule face uphill climb to further delay or dilute it

Former assistant Labor secretary who crafted the rule says President Trump won't be able to get rid of it simply because he doesn't like it

May 22, 2017 @ 9:00 am

By Mark Schoeff Jr.

A former Labor Department official who developed the agency's fiduciary rule said on Sunday that opponents of the measure face a steep climb in trying to further delay or overhaul it.

Phyllis Borzi, a former assistant DOL secretary who is known as the mother of the regulation, said that the Trump administration is not likely to be able to repeal the rule simply because it doesn't like the measure. Instead, it will have to cobble together a body of evidence that justifies such a move, something she says that critics have failed to do so far.

In contrast, she said, the Obama administration spent six years formulating the rule and incorporating feedback through extensive public comments, "hundreds and hundreds" of meetings with interest groups and showing Securities Exchange and Commission staff "every single draft" of the rule.

"Opponents of the rule are going to find it extremely difficult to successfully delay or substantially dilute the rule," Ms. Borzi said at the Fi360 annual conference in Nashville, Tenn. "They need to create a record that is as strong, as comprehensive as the record that we created over the six years."

The applicability date of the regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts, has been delayed from April 10 to June 9, as the DOL reassess the rule under a directive from President Donald J. Trump. That review could result in modification or repeal of the measure.

Critics of the rule say that it is too complex and costly and will make advice too expensive for investors with modest accounts. Supporters say it is needed to protect workers and retirees from conflicted advice that leads to the sale of inappropriate high-fee products that erode savings.

With several courts having upheld the rule in legal challenges from financial industry opponents, the bar for change has been raised, according to Ms. Borzi.

"The only thing that appears to have changed is the occupant of the White House," Ms. Borzi said. "If the administration decides to just flip this rule or make major changes in it, they will be sued. I don't think the courts are going to be looking favorably" at Trump administration attempts to stymie the rule.

At a House hearing last week, industry opponents called for an extension of the delay, citing new evidence of the rule's causing harm to investors. Another former DOL assistant secretary, Bradford Campbell, who served in the George W. Bush administration, pointed to an Investment Company Institute survey showing that brokers are abandoning small accounts and sending them back to mutual funds because they can't afford to service them under a fiduciary standard.

Ms. Borzi cast doubt on the ICI survey.

Opponents have "produced no new evidence. There isn't anything in those comments [regarding the implementation delay]...with the exception of the supposed ICI survey," she told reporters on the sidelines of the conference. She said that industry groups have consistently declined to provide data to validate such polls.

ICI spokesman Matthew Beck defended the findings of the trade association. He pointed to footnotes on pages 11 and 12 of the group's April 17 comment letter on the questions in Mr. Trump's directive, which provides background about the survey. It shows that accounts with an average of about $17,000 are being "orphaned" since the DOL rule was finalized in April 2016.

"The survey was of a sample of members large and small, representative of a broad spectrum of the industry," Mr. Beck wrote in an email. "Survey responses from members indicated that more than 500,000 accounts had been orphaned by early May 2017. "

But Ms. Borzi said it will take more than the ICI survey to halt the fiduciary rule.

"I don't think the industry gave [DOL] staff the data they needed to get the outcome they wanted," Ms. Borzi told reporters.

In fact, industry opponents are incensed that two provisions of the rule will become applicable on June 9, while the agency continues to conduct its review until the end of the year. They want the whole thing halted. Instead, the definition of who is a fiduciary to retirement accounts and impartial conduct standards will become applicable.

If the rule can make it to June 9 without another delay, it could be home free, said Blaine Aikin, Fi360 executive chairman.

"The odds of a pullback diminish rapidly," he said.

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