The Securities Industry and Financial Markets Associaiton praised the Labor Department's decision to repropose the chnages to the fiduciary standard under ERISA to, among other things, coordinate the rulemaking more closely with the SEC and CFTC. Since the beginning, SIFMA has raised significant concerns about the proposal and lack of cost-benefit analysis on a rule that would affect millions of IRA holders and plan participants. The new proposed rule is expected to be issued in early 2012.
DOL said that, consistent with the President's January executive order on regulation, the re-proposal will be designed to inform judgments, ensure an open exchange of views and protect consumers while avoiding unjustified costs and burdens. DOL also pledged tp coordinate closely with the SEC and CFTC to ensure that this effort is harmonized with other ongoing rulemakings. Specifically, DOL anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions.
Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice.
In testimony earlier this year before the House Education & Workforce Committee, SIFMA asserted that the proposed rule is in conflict with Section 913 of the Dodd-Frank Act, which authorizes the SEC to establish a uniform fiduciary standard of care for brokers and advisors providing personalized investment advice. While current exemptions to the prohibited transaction rules of ERISA permit fiduciaries to select themselves or an affiliate to effect agency trades for a commission, there is no exemption that permits a fiduciary to sell a fixed income security or any other asset on a principal basis to a fiduciary account.
Lack of exemptive relief in this area is contrary to what Congress explicitly stated in authorizing the SEC to promulgate a uniform fiduciary standard of care for brokers and advisers providing personalized investment advice under Section 913 of Dodd-Frank. In SIFMA’s view, the result of that conflicting prohibition is that the broker would not be able to execute a customer’s order from his or her own inventory, but rather must purchase the order from another dealer, adding on a mark-up charged by the selling dealer.
At the hearings, SIFMA also noted that, during consideration of the Dodd-Frank Act, Congress considered the question of a counterparty providing a fiduciary duty to plans engaging in swaps and it rejected such an approach because it wanted to be sure that plans could continue to engage in such activities principally for hedging purposes. However, as currently drafted, the Department’s proposed rule would result in a counterparty being deemed a fiduciary, which would eliminate the ability for plans to enter into swap transactions.
The SEC and CFTC were directed by Congress to establish business conduct rules for dealers engaging in swaps with plans, and the Department’s rule would conflict with those rules. SIFMA noted that DOL has not fully considered the costs of this proposal on small plans and IRAs and the manner in which their investment choices will be curtailed, or the costs on large plans that may be unable to engage in swaps, prime broker their assets, invest in alternatives, obtain futures execution and otherwise have their investment choices limited by the proposal.