A leading advocate for the Labor Department's fiduciary rule is calling on the agency to enforce the measure even while the regulation is undergoing a review.
In a
letter to DOL Secretary Alexander Acosta last Wednesday, the Consumer Federation of America cited a recent
Massachusetts enforcement action against Scottrade Inc. for allegedly violating state laws and internal policies by conducting sales contests that failed to adhere to the DOL rule, which requires brokers to act in the best interests of their clients in retirement accounts.
The Massachusetts case is the first instance of enforcement of the DOL rule, which was
partially implemented last summer. The remainder of the rule was
delayed until July 2019 while the agency conducts a review ordered by President Donald J. Trump that could lead to major changes.
The DOL said it would not enforce the provisions that are in place as long as financial firms are making a good-faith effort to comply.
In its letter, which was posted Tuesday, the CFA said other brokerages are likely committing violations similar to Scottrade's alleged infractions and that the DOL should crack down.
"We are concerned that some firms seem to have taken the Department's non-enforcement policy during this protracted transition period as a signal that they can willfully flout the requirements of the rule, and give conflicted advice that is not in customers' best interests, without fear of repercussions," wrote Barbara Roper, CFA director of investor protection, and Micah Hauptman, CFA financial services counsel.
"We urge you to take immediate steps to counter that impression," they wrote. "For those who view the Department's good-faith enforcement policy as a farce, doing so would send a powerful message that, despite the lengthy implementation delay, the Department remains committed to ensuring that retirement savers are protected from the harmful impact of conflicted investment advice."
A spokesman for TD Ameritrade, which merged with Scottrade last fall, declined to comment. A DOL spokesman was not immediately available for comment.
The letter to the Labor Department was
one of several the CFA sent to regulators.
In a
letter to Securities and Exchange Commission Chairman Jay Clayton, Ms. Roper and Mr. Hauptman said the agency should craft stronger sales-incentive prohibitions than those contained in the DOL rule when it drafts
its own fiduciary proposal.
"The SEC can and should do better in developing a rule proposal that reins in the toxic incentives that pervade the broker-dealer business model and, in some cases, the investment adviser business model as well, as the SEC's recent actions involving recommendations of high-cost
mutual fund share classes illustrate," Ms. Roper and Mr. Hauptman wrote.
The CFA letters to the
Financial Industry Regulatory Authority Inc.'s chief executive Robert W. Cook and state securities regulators encouraged each of them to target sales activities like the ones cited in the Massachusetts case among financial firms under their jurisdiction.
