Release Date: August 10, 2015
Contact: Carol Danko, 202-962-7390, [email protected]

 

SIFMA’s Bentsen Raises Concerns with Proposed Retirement Regulation at DOL Hearing

 

Washington, DC, August 10, 2015 – SIFMA president and CEO Kenneth E. Bentsen, Jr., today testified at the U.S. Department of Labor Hearing on Fiduciary Rule Proposal outlining SIFMA’s concerns with the proposed rule and its potentially harmful impact on investors. Bentsen’s full written testimony can be found here: http://www.sifma.org/issues/item.aspx?id=8589955932

Bentsen states, “The process before us today represents a failure in public policy that will disserve the retail investors, particularly the retirement savers that this rule aims to assist. We believe the rule, as drafted, will reduce choice and increase cost, and individual savers will have a more complex and confusing landscape.”

Additional testimony excerpts from the testimony regarding SIFMA’s positions and concerns are below:

Industry’s Support for a Best Interest Standard

“SIFMA’s members have long called for the implementation of a best interest or uniform fiduciary standard of care for brokers and advisors when providing personalized investment advice.  On that the record is quite clear.  Rather, we disagree with the process whereby one agency is developing yet another standard that will apply to only one sector of the retail investment market…. The bifurcation of standards will create confusion both for investors and the providers who must comply.”

“[W]e do not necessarily take issue with the DOL’s definition of a best interest standard, which we believe is fairly consistent with SIFMA’s long-standing advocacy in support of such a standard. Rather, we take issue with the hundreds of pages of extraneous conditions, restrictions, and prescriptions on top of its proposed best interest standard that our members believe create an unworkable set of rules in their current form.”

Concerns with the Rule

“The proposal so narrows ‘financial education’ that only those already educated will understand what they are being told under the Department’s proposed regime…The provider would only be able to provide guidance that includes broad asset classes. Giving asset classes without allowing examples will not help participants.”

“The Department’s proposal would also pull in all distribution and ‘rollover’ conversations. These are conversations that … might help that individual keep better track of the funds, and take a more active role in managing their funds… We do not believe that it is in the best interest of plan participants to discourage all conversations regarding distributions. By discouraging these conversations, leakage (dropping) out of the retirement system becomes far more likely.”

“[N]either the seller’s exception nor the BICE are available to participant directed plans with fewer than 100 employees, an omission which could result in small plan sponsors electing not to offer retirement plans… This could reduce the number of plans that are established, and possibly lead to termination of existing plans.”

BICE and PTEs

“The proposed exemptions that are intended to allow plans and IRAs to continue their current access to the markets will have the opposite result.  Virtually all of the new exemptions and the proposed amendments to existing exemptions are simply not administrable.  We note that the Department’s statutory authority to grant exemptions requires that they be administrable.  These proposals simply don’t meet the statutory standard.”

“The requirements of the Principal Trading Transaction Exemption cannot be met in the context of best execution.  Retirement clients will get worse pricing and delayed execution. Financial market fluctuations will create situations where there are changes to prices, credit ratings or liquidity conditions…. Delays caused from performing such repetitive disclosures may have unintended harmful consequences to customers such as best execution requirements and pricing disparities”

“Many of the requirements of both the BICE and the proposed Principal Trading Transaction Exemption are so broad, subjective, and ambiguous that it would be impossible to build systems and processes to ensure compliance or to create objective standards for surveillance.”

Impact on Asset Managers

“SIFMA’s Asset manager members are concerned that the expanded definition of investment advice will hamper their ability to act in the best interest of these clients. Asset managers will be less able to provide information and education than they are today. They may also be restricted in making available services and/or products or may only be able to do so at greater expense.”

Regulatory Impact

“The Department’s regulatory impact analysis fails to show how this proposal would benefit the public quantitatively, ignores potential costs to investors and greatly underestimates costs to providers.”

Conclusion

“It is important to consider where others have tried similar proposals, most notably the United Kingdom…. Recent reports estimate that 11 million investors have been priced out of the market due to decreased willingness of both financial advisors to provide advisory services and consumers to pay increased advisory costs. The result of the RDR has been the creation of an ‘advice gap’ in the UK… The Department’s proposal risks the creation of a similar ‘advice gap’ in the U.S.”

“SIFMA reiterates its longstanding support for the implementation of a best interests standard for brokers and advisors when providing personalized investment advice to retail clients for all of their accounts, not just their IRAs. Congress, very recently, determined that the SEC was the expert agency to take lead and we believe that is entirely appropriate. Our members feel very strongly that the Department’s proposal is far too complex and prescriptive establishing a myriad of new requirements that will be difficult if not impossible to implement, and will result in less education, fewer choices and greater costs to investors which is not in their best interests.”

See Also:
SIFMA’s DOL Fiduciary Resource Center