Assistant Labor Secretary Phyllis Borzi is the central figure in drafting the agency's proposed rule to expand the definition of fiduciary for retirement plans.
In an effort to halt that regulation and persuade the department to start over, the Financial Services Institute is going over Ms. Borzi's head and her boss's head, Secretary of Labor Hilda Solis, to President Barack Obama.
The FSI announced yesterday that its members had sent more than 3,000 letters to Mr. Obama and his chief of staff, William Daley, advocating a do-over on the rule.
The organization, which represents independent broker-dealers and financial advisers, asserts that the rule would limit investment advice to IRA holders. The Labor Department argues that retirement plan fiduciary rules, which have been in place since before the advent of 401(k)s, must be updated to better protect workers and retirees.
IRAs are governed by the
Internal Revenue Service under tax law and are not subject to the fiduciary standards of the retirement law that the Labor Department administers. The proposed rule would curtail the charging of commissions, according to critics, and force brokers to charge fees for IRA services, potentially hurting small investors.
“There is no example in the marketplace of anyone serving IRAs that are under $50,000 with upfront fees or AUM fees,” said Lillian Vogl, director of government relations at the National Association of Insurance and Financial Advisors, another group that opposes Labor's fiduciary rule.
In announcing its letter-writing campaign, the FSI echoed a bipartisan call at a recent House hearing for the agency to do more cost benefit analysis.
“When it comes to providing affordable, unbiased, independent financial advice to millions of Main Street Americans, you cannot overstudy this matter,” Dale Brown, the FSI's president and chief executive, said in a statement. “This rulemaking process should and must be suspended until a true impact assessment has been completed.”
In her appearance before the House Education and Workforce subcommittee in July, Ms. Borzi said that the agency would produce “the most solid cost information we can to justify the rule.”
She indicated that the agency still is on track to promulgate the final regulation by the end of the year. But she added, “It's more important to get this right than to meet the deadlines on our regulatory calendar.”
Ms. Borzi countered criticism of the proposal by saying that it would allow brokers to earn commissions on securities, mutual funds, insurance products and annuities and act as a seller without being a fiduciary. What it prohibits, she said, is providing investment advice that enriches advisers at the expense of plan participants.
“We don't have any intention of putting anyone out of business,” Ms. Borzi told the House panel. “This is all about accountability, transparency and eliminating conflicts of interest. The broker concern is due perhaps to misunderstanding.”
She also said that she has met with every stakeholder on the issue who has wanted to have an audience with her. But she's getting to the point where she's heard all the arguments against the proposal.
“You can't keep meeting and having the same conversations over and over again like that movie ‘Groundhog Day,'” she said.
The FSI acknowledges that it hasn't been able to change Ms. Borzi's mind despite lobbying her, other Labor officials, Gene Sperling, director of the National Economic Council, and members of Congress. The organization also has written comment letters and provided testimony at public hearings.
Its resolve, however, has not slackened.
“We're not giving up yet,” Mr. Brown said. “It's too important. We're going to try to influence [the process] in every way possible.”
In her congressional testimony, Ms. Borzi suggested that the debate is getting caught in a loop because the broker-dealer community is fixated on the idea that there are only two ways to provide investment advice — either commissioned-based or fee-based. She said other approaches are possible, but didn't elaborate.
“I find it extraordinary that an agency would posit that another business model exists out there and hasn't told us what it looks like,” Ms. Vogl said.
All the sides involved in the debate will be watching closely this month to see if Labor forwards a revised fiduciary rule to the Office of Management and Budget, the penultimate step in the process of finalizing the regulation.
