Commentary: Watching the hearings on the DOLs proposed conflict of interest rule was similar to watching an extremely competitive tug of war match with the DOL on one side and industry insiders on the other. (Consumer protection entities, a notable presence, also took their places.)
While the two sides battled, what became obvious to me is that there is indeed some middle ground where the DOL and the retirement industry might meet. For example, I noticed three major ongoing discussions during the course of the hearings.
1. The rules Best Interest Contract (BIC) exemption. This exemption would provide prohibited transaction relief to investment fiduciaries who agree to offer advice with the investors best interest in mind. While everyone wants advisers to act in the best interest of investors, the two sides disagreed on whether the DOLs BIC exemption is, first, necessary or secondly, so cumbersome that to comply with it would be business prohibitive.
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2. Carve-outs in the rule. The rule proposes several carve-outs, including the sellers carve-out and the investment education carve-out, which would exempt advisers from being considered fiduciaries. The DOL is increasingly concerned that advisers sometimes deliver investment advice disguised as education. During the hearings, their stance was that sales conversations should be distinguishable from investment advice in order to protect investor interests. The DOL also repeatedly argued that investment education would not rise to the level of fiduciary action. However, industry experts were not sold on the DOLs assurances that these carve-outs would operate as intended. Many commenters felt that the result would be that investors would have access to fewer investment options and less investment education.
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3. The rules impact on the public. Competing arguments on the costs associated with the rule and how it would affect small employers and investors with small retirement accounts were lively, indeed.
When the rule was released, the DOL produced a 200+ page regulatory impact analysis on the financial ramifications of conflicted investment advice and the millions of dollars it costs savers. Many commenters questioned whether those findings were legitimate and also touted the substantial costs retirement professionals would incur to comply with the rule. As such, many commenters argued this rule would essentially make investment advice inaccessible to smaller employers and investors. The DOL, however, did not back down from the numbers in the RIA and argued that smaller investors need protection the most.
Based on these three major discussions, I can clearly see some middle ground. Both sides want:
- Advisers to act in the best interest of investors;
- Clarity on the rules and to know exactly what will and will not make an adviser a fiduciary; and
- To protect smaller employers and investors with smaller retirement accounts.
In spite of these commonalities, the competing sides are still on opposite ends of the tug of war rope concerning the need for the DOLs rule and whether the rule can actually achieve the goals for which it was created.
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One thing is sure the tug of war is still going strong. Now that the hearings have concluded, there will be another comment period. Members of the public, retirement plan sponsors and service providers, and even Congressional representatives will certainly continue to weigh in on this rule. It also seems highly unlikely that the DOL will back down, and will do whatevers necessary to publish a final version of the rule. As the dust settles, itll be interesting to see which party has effectively pulled the opponent to their side of the middle ground.
Elizabeth Allen is AVP of benefits compliance and counsel for
