If an investor calls her broker today regarding holdings in her individual retirement account linked to Greece, the broker's answer could count as fiduciary advice under a proposed Department of Labor rule.
“That's an example of the breadth of this rule,” Richard Turner, vice president and deputy general counsel at AIG Life and Retirement, said Monday in Washington at an Insured Retirement Institute conference.
Industry leaders and experts expressed concern about the expansiveness of the DOL proposal, which would require brokers working with IRAs and other retirement accounts to act in their clients' best interests. In doing so, it would increase the number of financial advisers who are deemed fiduciaries.
“It covers almost all routine sales activities,” said Steven Saxon, chairman of the Groom Law Group. He called the rule DOL's attempt to put IRAs under its jurisdiction, or the “ERISA-fication of IRAs,” referring to federal retirement law.
The rule was
proposed in April with the backing of the White House. The comment period ends July 21. The DOL has tentatively scheduled hearings about the rule during the week of Aug. 10 and will take more comments following that event.
“What is it you're going to do to make it workable?” Mr. Saxon said. “If you want the regulation to succeed, you have to work with us.”
The agency must indicate how it will modify the rule before the hearings, Mr. Saxon said.
“We cannot wait until the regulation is finalized to see which direction they're going,” he told reporters on the sidelines of the IRI conference.
A DOL spokesman was not immediately available for comment. In a recent congressional hearing, Labor Secretary Thomas Perez said that the agency is listening to criticism of the proposal and
will “make it work.”
REDUCE CONFLICTS BUT LIFT COSTS
The rule is designed to reduce conflicts of interest for brokers working with clients in retirement accounts. The agency maintains that brokers must be deterred from recommending inappropriate, high-fee products when less expensive versions would take less of a bite out of their clients' retirement savings.
Opponents of the rule said that it will significantly increase liability risk and regulatory costs for brokers, potentially pricing them out of the market to serve workers and retirees with a modest accounts.
Like many industry groups, IRI says that it supports a best-interests standard but is worried about how the rule would work.
“We have concerns about the application of this rule and the consequences it will have on retirement savers if significant changes are not made to the rule,” Lee Covington, IRI senior vice president and general counsel, said at the conference.
Under the rule, a so-called best-interests contract exemption would allow brokers to receive compensation in a variety of ways as long as they sign a legally binding contract in which they agree to act in the client's best interest.
Participants on the IRI panel criticized the exemption for requiring excessive disclosures, mandating a client agreement too early in the discussion about their retirement needs and containing language that would excessively curb broker compensation.
In addition to
legislation on Capitol Hill to deny DOL funding for the rule, there also is a bill being drafted that would codify a best-interests standard for brokers in a different way than the DOL rule would do, according to Mr. Saxon.
Those efforts won't be needed if DOL changes the rule.
“The Labor Department will succeed in getting the regulation done, if it's workable,” Mr. Saxon told reporters.
