‘Fiduciary’ regulation to be re-proposed

The Labor Department announced Monday that it plans to re-propose a contentious regulation at the center of a huge lobbying campaign by the financial services industry.

Banks and other financial services firms have been up in arms over the Employee Benefits Security Administration’s (EBSA) proposed rule to broaden the definition of “fiduciary” status. The change to the 1975 regulation could lead to more people —including advisers who oversee investment retirement accounts (IRAs) — falling under that status, potentially changing how they are compensated.

{mosads}On a conference call with reporters, Phyllis Borzi, Labor’s assistant secretary for EBSA, said the response to the proposal has been overwhelming and that her agency decided to take their time to get the regulation right.

“I know many of you have heard me say over and over again that we’re going to take the time to get it right, not to rush to meet the deadline that we set arbitrarily two years when we announced this reg. We are absolutely committed to making sure that the consumer protections we have established with this rule continue to be strong as possible,” Borzi said.

Financial services firms have contended that if the rule were finalized, brokers and other advisers would have to change their commission-based compensation model and receive annual fees instead. Lobbyists have argued that will lead to higher costs for those with retirement accounts, potentially pricing millions out of the IRA market and cutting off their access to investment advice.

The Labor Department proposed the regulation because of worries over self-dealing financial advisers. With the retirement services market having now grown considerably, department officials cited several investigations by those in government and academia that showed conflicts of interests for financial advisers could lead to higher costs and lower returns for investors. 

The proposed rule has attracted attention on Capitol Hill and from Wall Street.

Borzi has testified before Congress about the proposed rule. The department has received more than 260 written public comments regarding the proposal, held two days of open hearings and hosted more than three dozen individual meetings with those interested in the rule.

“We have listened very carefully. God knows we have heard enough, so we listened very carefully to what we have heard from the stakeholders on all sides of the issue,” Borzi said.

K Street applauded the decision to repropose.

“Right now our economy needs more Americans saving for retirement, not plans that reduce those options to save. We are pleased with this morning’s announcement that the [Labor Department] will withdraw and re-propose its rule defining fiduciary duty. This is the right decision for the millions of American retirement plan holders, and the qualified professionals who help them,” the Financial Services Roundtable said in a statement.

Borzi estimated that the re-proposed rule will come out early next year.

“For sure, it will be after the first of the year that the rule will be technically re-proposed,” Borzi said. “People can look for a re-proposal of this proposed reg at some point early next year. I think that’s my best guess.”

Borzi also said her agency will be working on new exemptions to the proposed rule. Some of those exceptions will likely be for those who handle IRAs and operate on a fee-based compensation model that many felt came under threat from the proposed regulation.

{mosads}“Our goal is to get all these exemptions out at the same time we re-propose this rule,” Borzi said.

Democrats and Republican lawmakers alike pushed back against the proposed regulation, many calling on the agency to abandon or re-propose the regulation. The latest was Rep. Barney Frank (D-Mass.), the ranking member of the House Financial Services Committee, who wrote to Labor Secretary Hilda Solis last week to ask her to re-propose the rule.

Borzi said the lobbying push was a factor in her agency’s decision to re-propose the regulation but that they would not have gone forward unless they believed it was best for the public.

“We got lots and lots of public comments, and every time we got more public comments, and every time we responded to it, we got more,” Borzi said. “We wanted to get this right and the fact that people urged us to re-propose is certainly a factor and a reason why we did it but we wouldn’t have reproposed if we didn’t think it was the right thing to do from the point of view of good government.”