Labor Department is seeking details on their members' IRAs
After meeting with Labor Department officials to clarify a request for data related to individual retirement accounts and getting two extensions on a deadline for providing the material, industry groups are telling the agency: Sorry, we can't help.
In mid-December, the Labor Department sent a letter to interest groups representing financial advisers, asking them to provide details regarding their members' IRA business, including personal rates of return, amount of gains and dividends paid, the identity of the adviser, compensation arrangements and advice provided.
The data will be used to conduct a cost-benefit analysis of a potential rule that would expand the definition of “fiduciary” for anyone providing investment advice to retirement plans. The agency said that it is trying to protect workers and retirees who now must build their own nest eggs through 401(k) plans and IRAs.
The original deadline for a response was Jan. 15. But after financial groups protested that they weren't given enough time, the deadline was pushed back to Feb. 17 and then to Feb. 24.
In September, the Labor Department withdrew a proposed fiduciary rule after a firestorm of protest from the financial industry and bipartisan members of Congress, who asserted that it would place a fiduciary duty on the sale of IRAs for the first time.
The agency plans to re-propose the rule this summer with a related cost-benefit analysis. Even though industry has insisted on such an assessment, it said in recent letters to the Labor Department that it can't provide the data necessary to conduct it.
“Even a partial response to the department's request would require an extraordinary amount of time and effort for our member firms, well beyond the response time allowed by the department,” Dale Brown, president and chief executive of the Financial Services Institute Inc., wrote in a Feb. 24 letter to the Labor Department's Employee Benefits Security Administration.
In his letter, he said that the data the Labor Department seeks is “spread across multiple systems and paper records” at the more than 100 independent broker-dealers that his organization represents.
Collecting “even a partial data set” would cost firms “several hundred to several million dollars,” Mr. Brown wrote.
The National Association of Insurance and Financial Advisors gave the Labor Department a similar response, saying that it couldn't collect the data that the agency is seeking from its approximately 50,000 members.
“Because of the nature of our membership, it is not feasible for us to obtain any of the data enumerated in your Dec. 15, 2011, letter,” wrote Susan Waters, NAIFA's chief executive, in a Feb. 17 letter to the EBSA. “The relationship of our members to their clients and affiliated companies is such that they likely would not have the right to share the client's or company's data even if they have some access to it.”
Although the Labor Department didn't get the depth and breadth of information it sought from the industry, it is tapping other sources and forging ahead with its regulatory-impact calculation.
“While neither FSI nor the other groups have been able to provide many of the suggested data elements, the department appreciates the information that has been sent, and it's working diligently to review and assess it,” an agency spokesman said. “We are, however, disappointed that more data was not available from the industry sources. The department is in the process of assessing costs and benefits using available data.”
The FSI also questions the Labor Department's methodology, based on the data that it is attempting to collect.
“Even if the focus is narrowed to investment services, neither investment returns, nor trading history, nor any of the other investment data the department requested is a valid indicator of whether the IRA owner has been effectively and impartially served by a financial adviser,” Mr. Brown wrote.
The Securities and Exchange Commission also is poised to issue its own data request to conduct a regulatory-impact study of a potential rule that would impose universal fiduciary duty on retail investment advice.
SEC Chairman Mary Schapiro told reporters Friday that there is no timetable for the SEC's data query.
But compiling such an assessment is likely to push back a proposed rule until this fall or perhaps next year.
Industry groups will continue to pressure the Labor Department to justify the expansion of fiduciary duty.
“The key to all of this is the onus is on DOL to show there's a problem they're trying to solve,” said Chris Paulitz, an FSI spokesman. “It's not on FSI or our members, and they also have an obligation to conduct a true economic-impact study on their rule.”
