DOL: IRA advice will be included in new proposal

A fervent outcry from a wide range of financial industry groups and bipartisan lawmakers helped persuade the Labor Department to withdraw a proposed rule to expand the definition of “fiduciary” for advisers to retirement plans. But though opponents won a victory in the battle, the war is far from over. Phyllis C. Borzi, assistant secretary of labor, said in an e-mail that individual retirement accounts will be covered by its new fiduciary rule — pressing the hottest button in the debate. The Labor Department argued that the original rule would protect investors from advisers' conflicts of interest that undermine their retirement savings — most of which they now have to build on their own through 401(k)s and IRAs. Critics said that the rule was too expansive and would subject broker-dealer IRA advisers to fiduciary duty for the first time. They said that it would curtail commissions, raise compliance and liability costs, and hurt small investors by limiting access to IRA advice. The Labor Department rule shouldn't touch on IRAs, because the products are part of the tax code, regulated by the Internal Revenue Service, rather than employer-sponsored retirement plans, which are overseen by the agency under the Employee Retirement Income Security Act of 1974, said Lillian Vogl, director of federal government relations for the National Association of Insurance and Financial Advisors. “People are completely free in the IRA market to change their service providers,” she said. “You are your own fiduciary. If you make IRAs more heavily regulated, people won't put money into IRAs,” Ms. Vogl said. In its new proposal, the Labor Department must delineate exemptions that would apply to IRA advice; otherwise, broker-dealers could abandon the IRA market, according to Barbara Roper, director of investor protection at the Consumer Federation of America. “You can't apply the no-conflicts ERISA model to the IRA world,” she said. “There's not a long line of fee-only advisers ready to step into the breach.” Email Mark Schoeff Jr. at mschoeff@investmentnews.com