FSI
  • Executive Summary of FSI’s Comment Letter on DOL Fiduciary Proposal

    FSI stands ready and willing to work with the Department and others toward achieving the goal of enhancing investor protection while ensuring access by all to affordable retirement advice, products, and services. FSI offers the following executive summary of the comments and issues raised in this comment letter. Select a title item below to view the summary of each topic:

  • Public Policy Context and Adverse Impacts of Department’s Proposal

    o   FSI Supports a Uniform Fiduciary Standard: Since 2009, FSI has supported a uniform fiduciary standard of care applicable to all professionals providing personalized investment advice to retail clients. Consistent with the Department’s intent, this standard of care would require financial advisors to act in the best interest of their clients.

    o   Barrier to Uniform Fiduciary Standard: The Proposal would be a barrier to a uniform fiduciary standard of care that could apply to all investment advice professionals for all retail accounts.

    o   Adds Regulatory Complexity: The Proposal will add complexity to an already complicated regulatory environment for broker-dealers, investment advisers, financial advisors, and investors. It overlays the existing regime with an intricate regulatory framework that will raise new barriers to the availability of professional investment services for millions of Americans.

    o   Exponential Increase in Number of Standards: The Proposal would require investors to transition from understanding two standards of care to understanding six different standards of care.

    o   Reduces Access: The Proposal would reduce access to retirement advice and services for low and middle-income investors by favoring passive investment "robo-advice" over professional and personalized investment guidance. The Proposal would also establish road blocks that prevent or deter financial advisors from offering their services to small businesses seeking to create retirement accounts for their employees.

    o   U.K. RDR: The United Kingdom’s experience with Retail Distribution Review foreshadows the negative impact that the Proposal will have on small accounts in the U.S. 

    Carve-Outs from the Definition of Fiduciary Investment Advice Need Expansion

    o   Counterparty Carve-Out: The Counterparty Carve-out should be expanded to cover advice paid for through plan assets, and should cover plans of any size. All plan fiduciaries are required to have or obtain the type of financial expertise that the Department uses to justify the “large-plan” carve out.

    o   Education Carve-Out: The Education Carve-out must preserve investor access to meaningful investment education. The Proposal’s changes precluding identification of specific investment alternatives will deny investors access to helpful information that greatly benefits their investing experience.

    o   Platform Carve-Outs: The Platform Provider/Selection and Monitoring Assistance Carve-outs should be expanded to cover IRA platforms. IRA owners are fully capable of understanding that a provider’s standardized IRA platform is not individualized to the needs of the IRA owner.

    The Department’s Regulatory Impact Analysis is Incomplete

    o   Speculative Data: The Department’s Regulatory Impact Analysis contains data that is speculative, difficult to measure and far afield of solid empirical data gathered by independent experts.

    o   Unaccounted Costs: The analysis fails to take into account the costs to retirement savers who would not be in the system without access to financial advice and are well served by advisors who work with them on a commission basis.

    o   Underestimates Compliance Costs: The compliance costs outlined in the analysis are significantly understated. Based on FSI research, the costs will be several multiples higher than the Department’s estimates. 

    BICE Requires Significant Changes to Ensure Investors Have Access to Personalized Retirement Advice

    o   Written Contract Requirement: The Best Interest Contract Exemption (BICE) written contract requirement is inconsistent with customary practices in the financial services industry and reasonable investor expectations. FSI encourages the Department to reconsider the BICE pre-advice, pre-transaction contract requirement.

     o   Private Right of Action: The creation of a new private right of action appears to be beyond the scope of the Department’s delegated authority. The BICE private right of action displaces SEC and FINRA authority over industry enforcement and investor disputes.

    o   Definition of Asset: The BICE definition of “Asset” hinders best interest advice by impeding diversification in retirement accounts and exposing investors to greater risk. FSI proposes a broader definition of “Asset” to ensure financial advisors can recommend the best investments for a client’s specific needs.

    o   IRA Rollovers: The unclear application of the many BICE requirements to IRA rollover advice creates uncertainty that will jeopardize retirement savings. FSI urges the Department to clearly state that rollover advice is eligible for protection under BICE, requiring advisors to meet a best interest standard.

    o   Levelized Compensation: The BICE restrictions on compensation are duplicative and do not serve investor interests. Levelized fee arrangements would make access to financial advice cost-prohibitive for small investors.

    o   Compliance Costs: The BICE exposes financial institutions to a myriad of compliance costs and added liability risks that render the exemption unusable in its current form.

    o   Operational Difficulties: The BICE disclosure requirements will require access to third-party information and massive overhauls of administrative systems thereby increasing costs substantially.

    o   Grandfathering Provision: The BICE grandfathering provision is ineffective and should be expanded to account for customary client maintenance procedures.

    The Proposal’s Prohibited Transaction Class Exemption for Debt Securities Transactions Effected on a Principal Basis is Inadequate

    o   Riskless Principal Trades: Riskless principal trades are the functional equivalent of agency transactions and should be excluded from the PTE.

    o   Operational Difficulties: The separate contract requirements, confirmation mark-up disclosure requirements and pricing requirements are all costly and very challenging to implement.

    o   Investor Confusion: The multiple disclosures will not provide sufficient context and education to be useful for investors.

    PTE 84-24 Will Reduce Access

    o   Restricts Access: The amendments to the proposal’s Prohibited Transaction Class Exemption (PTE) 84-24 will require many firms to discontinue relationships that have traditionally relied on the protections of PTE 84-24, thereby reducing access to professional advice.

    o   Lack of Clarity: Uncertainty regarding the definition of “insurance commission” clouds the compliance landscape and exposes the industry to liability risks many financial advisors will be unwilling or unable to assume.

    Proposal Requires Longer Implementation Period

    o   Applicability Date: Our members will need, at minimum, 36 months to put the Proposal into place, assuming that the Department eliminates many of the BICE disclosures, adopts a conventional grandfathering rule, and that many of the existing prohibited transaction class exemptions are preserved in current form. If the Department does not make these changes to BICE, our members require additional time to achieve compliance.

    FSI Proposes Workable Alternative

    o   Uniform Fiduciary Standard: We support a fiduciary standard of care that can be adopted uniformly across all types of investment accounts and can apply to all investment professionals.

    o   Compensation Governance: We support requiring policies and procedures reasonably designed to manage material conflicts of interest.

    o   Robust Disclosures: We suggest a comprehensive two-tiered disclosure regime, supplemented by a point-of-sale disclosure and an annual disclosure.

    o   Interagency Coordination: The alternative should be produced through coordination between the Department, SEC, FINRA and state securities regulators.


  • Click here to read FSI's full comment letter

    UPDATE: On June 1, 2016, FSI, along with other industry trade associations, filed a legal challenge to the DOL’s fiduciary rule.Click here for more information on our decision to litigate.