Thursday, April 20, 2017

SIFMA criticizes DOL fiduciary rule, urges delay and further review

By Amy Leisinger, J.D.

In separate letters, the Securities Industry and Financial Markets Association and its Asset Management Group filed comments with the Department of Labor criticizing its fiduciary rule and noting unintended consequences. Both called for a delay the applicability of the rule beyond June 9, 2017, in order to allow for a comprehensive review consistent with President Trump’s February 2017 memorandum.

“Notwithstanding the industry’s longstanding and continued support for a best interest standard, SIFMA continues to believe the DOL rule will do investors much more harm than good. As our letters clearly state, the evidence gathered as firms have moved to implement the rule shows the negative consequences of less choice, greater cost, and increased legal liability,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO.

In its letter, SIFMA argued that the DOL rule is impractical and must be rescinded or revised to avoid adverse effects for retirement savers, including increased costs and limited access to advice and products. SIFMA AMG agreed with many of the larger organization’s statements, noting that the rule “has already resulted in and will likely continue to result in dislocations and disruptions of retirement services” and that limited access to advice will hinder investor access to maximized returns. The groups suggested that asset managers may offer less information and fewer analytical tools to avoid inadvertently becoming subject to the additional burdens of the fiduciary rule. In addition, they argued that the cost analysis currently relied on in connection with the rule is significantly flawed and based on incorrect assumptions; the DOL has significantly underestimated compliance costs, the groups explained.

SIFMA cited a survey of 25 firms finding around half considering moving IRA brokerage clients to call center services only and anticipating changes in client services. A majority of the responding firms stated that their plans could limit or restrict products and services available to retirement investors, SIFMA noted. In addition, according to SIFMA, more than 60 percent of the firms stated that they anticipate that the costs of potential increases in litigation and liability insurance costs may be passed on to clients.

The groups urged the DOL to recognize the potential for a substantial increase in litigation that could result from differing views of services provided and argued that many aspects of the rule are impractical and inconsistent with other financial regulations. The rule lacks a seller’s exemption and poses risks of negative effects on financial literacy and rollover conversation, according to the organizations. Further, while supporting a uniform best interest standard, they do not see the current rule as the correct approach, they explained. According to the groups, the DOL’s best interest contract exemption should be completely restructured: “it goes too far, offering solutions in search of problems, and creating more roadblocks than help for retirement investors,” the groups opined.

“In many ways, the fiduciary rule unnecessarily disadvantages investors and will lead to significant negative consequences,” SIFMA AMG concluded.