Author Archives: Carolyn Sofman

Coalition Summary of the DOL’s Re-Proposed Fiduciary Rule

The Coalition has developed the following summary of the Department of Labor’s proposed fiduciary rule for stakeholders seeking to understand the proposal and its impact. A downloadable version is available here.

I. Who Is a Fiduciary Adviser Under ERISA?

Under the Department of Labor (DOL)’s proposed definition, a “fiduciary adviser” is any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision.

Such decisions can include, but are not limited to, what assets to purchase or sell and whether to rollover from an employer-based plan to an IRA. The fiduciary adviser can be a broker, registered investment adviser, insurance agent, or other type of adviser. It is important to note that the DOL will determine who is a fiduciary based not on the adviser’s title, but rather on the advice provided to the client.

II. Activities That Do Not Trigger Fiduciary Obligation

  • General education on retirement savings: The DOL proposal excludes education from the definition of retirement investment advice so that advisers and plan sponsors can continue to provide general education on retirement saving for employment-based plans and IRAs without triggering fiduciary duties.
  • Order-taking: The proposed rule distinguishes “order-taking” as a non-fiduciary activity.
  • Seller’s carve-out: Brokers who pitch to large plans with a degree of sophistication are not deemed to be fiduciaries.

III. Proposed Rule Accommodates a Broad Range of Business Practices

The DOL’s proposed rule includes new, broad, principles-based Prohibited Transaction Exemptions (PTEs) that can accommodate a range of evolving business models. For example:

  • Best Interest Contract Exemption: To qualify for the “best interest contract exemption” advisers and firms must enter into a contract with their clients that:
    • commits the firm and adviser to providing advice in the client’s best interest;
    • warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest; and
    • clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.

The exemption would allow firms to continue to set their own compensation practices so long as they, among other things, commit to acting in their client’s best interest first and disclosing any conflicts that may prevent them from doing so. Common forms of compensation in use today in the financial services industry, such as commissions and revenue sharing, would be permitted under this exemption.

  • Principal Transaction Exemption: This exemption would allow advisers to recommend certain securities and sell them to the customer directly from the adviser’s own inventory, as long as the adviser adheres to the exemption’s consumer-protective conditions.
  • Pre-existing Transaction Exemption: This exemption would allow advisers to receive on-going compensation payments in connection with a prohibited transaction that was completed before the enactment of the proposed rule, as long as the adviser does not provide additional advice to the plan or IRA regarding the same asset after enactment of the proposed rule.

Additionally, the proposal asks for comment on whether the final package should include a new streamlined “low-fee exemption” that would allow firms to accept payments that might otherwise be deemed “conflicted” when recommending the lowest-fee products in a given product class.

IV. Enforcement of Proposed Rule

Under the proposed rule, enforcement actions could include:

  • DOL: The agency could bring enforcement actions against fiduciary advisers to plan sponsors and plan participants who do not provide advice in their clients’ best interest.
  • IRS: For IRA accounts, the IRS could impose excise taxes on conflicted advice transactions that are not eligible for an exemption.
  • Consumers: A plan sponsor or plan participant harmed by bad advice could bring an action against a fiduciary adviser, per current law. Under the “best interest contract exemption,” customers (both plan participants and IRA owners) could hold fiduciary advisers accountable through a private right of action for breach of contract. The proposed rule would expand the scope of enforcement from current regulations under which neither the DOL nor the client can hold an adviser accountable for advice to IRA owners.

A contract can require that individual disputes be handled through arbitration but must give clients the right to bring class action lawsuits in court if a group of people is harmed.

V. Rulemaking Process Going Forward

The DOL encourages stakeholders from all perspectives to submit comments during the 75-day comment period which ends on July 6, or during a public hearing that will be scheduled shortly after the end of the comment period. The DOL will review public and determine whether any modifications should be made to the proposed rule. The DOL will publish the final rule in the Federal Register.

Questions or comments? Contact the Financial Planning Coalition: mail@financialplanningcoalition.com

Coalition Statement on Release of DOL’s Proposed Fiduciary Rule for Public Comment

The Financial Planning Coalition issued the following statement in advance of the release for public comment of the Department of Labor’s (DOL) long-anticipated rule to amend the definition of “fiduciary” under the Employee Retirement Income Security Act (ERISA):

“Today’s release of the DOL’s fiduciary rule for public comment is an important step forward in updating a 40 year-old law to provide greater protections for Americans and their retirement nest eggs. A secure retirement is an essential part of American life, often built on many years of hard work and saving. The financial advice Americans are given related to their retirement savings should always be squarely in their best interest, and should not undermine their efforts to meet financial goals. The DOL’s rulemaking should proceed without further delay or obstruction to full and open public evaluation and comment. The Coalition partners look forward to reviewing and providing perspective on this important rule.”

Coalition Statement on SEC Chair Mary Jo White’s Testimony Before the House Financial Services Committee

The Financial Planning Coalition applauds Securities and Exchange Commission (SEC) Chair Mary Jo White’s decision to direct SEC staff to develop a rule to establish a uniform fiduciary standard of conduct for broker-dealers consistent with the current standard for registered investment advisers:

“A uniform fiduciary standard of conduct for broker-dealers is a long overdue investor protection, and will close the harmful gap between advice provided by investment advisers under a fiduciary standard and the merely ‘suitable’ advice currently required from broker-dealers. We urge the SEC to act swiftly to move forward with this well-researched proposal, which will protect Americans from potentially detrimental investment advice not delivered in their best interest.”

Congress authorized the SEC to adopt a uniform fiduciary standard under the Dodd-Frank Act nearly five years ago, and SEC staff first recommended the adoption of a fiduciary standard four years ago, allowing for ample research and careful consideration of this investor protection measure. Regarding Chair White’s request that SEC staff also prepare recommendations on third-party examinations to supplement the Commission’s existing examination program, the Coalition believes:

“New proposals regarding investment adviser oversight, specifically third-party examinations, have yet to undergo the level of thorough discussion and scrutiny that informed Chair White’s decision to move forward with fiduciary rulemaking. We encourage Chair White and the SEC to carefully consider all of the options for making necessary improvements to adviser oversight – including user fees – before proceeding. Oversight and examinations are a critical part of the SEC’s investor protection mission, and measures for improving this program merit further research.”

Financial Planning Coalition Applauds SEC Chair Mary Jo White’s Support for a Uniform Fiduciary Standard

The Financial Planning Coalition issued the following statement regarding Securities and Exchange Commission (SEC) Chair Mary Jo White’s announcement at the SIFMA Compliance and Legal Society Annual Seminar that she personally believes that the SEC should implement a uniform fiduciary duty for broker-dealers and investment advisers.

“We applaud Chair White for her view that a fiduciary rulemaking to protect investors is long overdue. American investors have suffered for too long from advice that is not necessarily in their best interest. Even as the Department of Labor (DOL) advances a separate fiduciary proposal for retirement assets, the SEC should now boldly move forward with its own rulemaking to close the harmful gap between advice provided by investment advisers under a fiduciary standard and the merely ‘suitable’ advice currently allowed by broker-dealers.

“It has been nearly five years since Congress authorized the SEC to adopt a uniform fiduciary standard under the Dodd-Frank Act, and four years since SEC staff recommended the adoption of a fiduciary standard that is ‘no less stringent than currently applied to investment advisers under the [Investment] Advisers Act [of 1940].’ We again urge the SEC to move forward thoughtfully and promptly to propose a rule that is consistent with this recommendation. American investors deserve advice that is in their best interest.”

Financial Planning Coalition research shows that American consumers want greater investor protection, including through the adoption of a fiduciary standard. In response to a 2013 survey, 93 percent of respondents said that they agree with the statement that financial advisers “should put your interests ahead of theirs and should have to tell you upfront about any conflicts of interest that potentially could influence that advice” – the very definition of the fiduciary standard.

Coalition Statement on Appropriators’ Letter to OMB Regarding DOL Fiduciary Rule

The Financial Planning Coalition issued the following statement after a letter from the Chairmen of the House and Senate Appropriations Subcommittees on Financial Services and General Government was sent to Office of Management and Budget (OMB) Director Shaun Donovan, expressing concerns over the Department of Labor’s (DOL) fiduciary rule proposal:

“We continue to urge the OMB to thoroughly and swiftly review the DOL’s proposed fiduciary rule and to resist any attempts by policymakers and industry participants to halt or delay this process based on mere presumptions about a yet-to-be-released rule. Premature attempts to keep the DOL’s proposed update of a 40 year-old rule from being subject to public review and comment should be opposed. While the Coalition cannot support the substance of a rule it has not seen any more than opponents can condemn it, we support an open and transparent process, a position anyone concerned about the security of Americans’ retirement savings should hold. We look forward to reviewing the rule when it is released for public review and comment by all stakeholders.”

Coalition Statement on Wagner Fiduciary Bill

The Financial Planning Coalition issued the following statement after Rep. Ann Wagner’s (R-MO) reintroduction of legislation that would delay, or even prevent the U.S. Securities and Exchange Commission (SEC) and the Department of Labor (DOL) from developing fiduciary rules crucial to investor protection:

“Rep. Wagner’s legislation, the Retail Investor Protection Act, is an investor protection bill in name only. The Financial Planning Coalition helped prevent this legislation from becoming law when it was first introduced and continues to oppose it now and in the future. This bill, if enacted, would leave American investors vulnerable to potential abuses and would substantially impede or even prevent the SEC from proceeding with Congressionally authorized fiduciary rulemaking. All investors deserve to receive investment advice that is based on their best interests, and this legislation would require the Commission to consider less adequate and less effective alternatives. The bill would also slow or effectively prohibit the DOL from proceeding with its proposed fiduciary rulemaking for financial professionals who provide investment advice to retirement savers. This cynical attempt to undermine these critical investor protection efforts should be opposed.”