Fiduciary rule delay fails to pacify Sifma

Rule not consistent with presidential priorities and must be rescinded or revised, group says

The decision to delay – and presidential skepticism of – requirements for brokers to act in the best interests of retirement clients have not stopped the Securities Industry and Financial Markets Association (Sifma) keeping up its campaign against the rule.

The US Department of Labor (DoL) earlier this month announced that it has granted a 60-day extension – to June 9 – for brokers to comply with the rule that imposes on them a fiduciary duty when offering retirement-related advice. Also delayed were transitional aspects of the best interest contract (BIC) exemption, which allows advisers to collect commission, revenue sharing or other types of compensation if they reach a contractual agreement stating that they will act in a client’s best interest.

The delays follow a memorandum from President Donald Trump that directed the DoL to examine the rule to ensure it would not harm the ability of investors to gain access to retirement information and financial advice.

The department has requested feedback on implementing the rule. It plans to complete its review and decide whether to make or propose further changes to the fiduciary rule or associated exemptions by January 1, 2018, when all of the exemptions’ conditions – including the full BIC requirements – are scheduled to become fully applicable, officials write in announcing the delay.


‘LIMITING CHOICES’
In an April 17 comment letter, Sifma managing director and associate general counsel Lisa Bleier writes that firms’ response to the fiduciary duty rule ‘has caused significant changes to many current business models,’ which has limited the choices available to retirement investors and their access to advice, and has increased product prices.

Bleier quotes the presidential memorandum as stating that ‘one of the priorities of the administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build their individual wealth necessary to afford typical lifetime expenses.’ The rule is not consistent with this and therefore – as ordered by the president – it must be rescinded or revised, according to the industry group.  

‘We urge the department to immediately issue an additional 180-day delay in the applicability dates so that the rule and its accompanying exemptions do not go into effect until the study mandated by the president is completed, and until the president, the secretary of labor and his appointed staff have had an opportunity to review the record underlying the study and decide on next steps,’ Sifma states.

Companies have found the breadth of the rule and the ‘complexity and pitfalls of the accompanying exemptions’ to be nearly impossible to adapt to their existing business models, according to the group. Both the rule and many underlying details, including the exemptions, are ‘unworkable’, according to Bleier.

She adds that the BIC exemption is the only ‘real exemption’ proposed for retail accounts, which she says does not work. ‘One response has been to avoid it by modifying business models so that there is no need to rely on BIC, either because the retirement investor will receive no advice from a financial adviser or because the only available product for a retirement investor is an asset-based fee advisory program,’ she says.

Bleier argues that individuals directed to asset-based fee-advisory programs as a result of the rule face higher costs because, on average, such programs are more expensive than traditional buy-and-hold commission brokerage accounts. ‘The other new exemption, for principal transactions, is so cumbersome that no institution has announced its intention to rely on it,’ she adds.

Among other things, the group argues that the various exemptions’ reliance on private plaintiffs to enforce the rule ‘significantly increases the probability of meritless litigation and will likely lead to even further increases to the costs of products and services (and/or a further reduction in the products and services made available) to retirement investors to reflect the risk of, and expense associated with, defending disruptive class actions.’

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