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Five Ways to Fix DoL’s Fiduciary Proposal The Financial Industry Supports a Best Interest Standard. Codify it. Now.

The financial services industry supports codifying a “best interest” standard in an appropriate uniform, coordinated way.

A federal law called ERISA mandates special rules when financial professionals seek to provide retirement advice to retirement savers. Financial firms rely on “Prohibited Transaction Class Exemptions” or PTEs that are approved by the Department of Labor (DoL) to ensure that firms and their employees can comply with ERISA. DoL’s proposed rule would substantially alter these existing PTEs and many business models, and therefore impact millions of retirement savers.

SOLUTION: •F SR supports crafting a PTE that is based on the investment advice exemption already allowed under the 2006 Pension Protection Act (PPA). A rule based on this exemption would still require that financial professionals and firms act in the best interest of each customer and provide appropriate disclosures without such significant disruption to customers. This alternative would recognize that the fees and expenses of various investment products and services vary based on the type of product or service.

Commissions or fees would be uniform among the same class of investment options.

This recognizes there can often be more effort and analysis required for different types of investments, which should be reflected in compensation.

•F SR’s proposal is modeled on a path Congress thought was reasonable for retirement advice that reflects our modern retirement system.

Enforce the Laws—Hold People Accountable

There are already many federal, state and industry regulations on the books to hold financial services firms and professionals accountable. Federal and state regulators have many tools they can use to punish those who violate the law—which includes civil and administrative suits, criminal penalties and jail-time.

SOLUTION: Let’s fully enforce existing laws to remove bad actors from the business and further ensure all consumers have their best interest met.

Financial Services Roundtable 600 13th ST., NW, Suite 400 | Washington, DC 20005

@FSRoundtable

Five Ways to Fix DoL’s Fiduciary Proposal

Make Disclosures Work Better for Consumers

Disclosures are not user friendly. If adopted, would merely add to the stack but not improve current disclosures. FSR wants to work with state and federal regulators to improve disclosures so consumers can quickly access information about what they’re getting, how they’re paying for it, and how their financial professional and firm are compensated. DOL’s proposal includes new, overly-complex disclosure requirements that raise customer financial privacy concerns and appear to conflict with existing regulations.

SOLUTION: The financial services industry, Congress and regulators should work together to make disclosures work better for customers. No more telephone book towers of disclosures that consumers refuse to read, which don’t help consumers make informed choices.

Sign Before You Talk? Not Likely

DOL’s proposal calls for consumers to sign a contract before even determining if they want to do business with a financial professional or company. “I have to sign on the dotted line before you will even talk to me?”

SOLUTION: Instead of creating a whole new way for customers to interact with financial professionals, DoL should eliminate further consideration of this requirement, and instead allow firms to develop account documentation procedures (including timing and signature requirements) based on the particular needs of the firm and its customers. With the codifying of a “best interest standard” customers will already know their financial professional has their best interest at heart.

Limiting Choice

DoL’s proposal would limit choices available to customers in selecting certain types of retirement investments, reduce opportunities for firms to include “model portfolios” in online investment tools, and discourage small businesses from starting or continuing retirement savings plans for their employees.

SOLUTION: Adopt a genuine best-interest standard—like one that FSR is proposing based on an existing exemption under the PPA—that allows the financial professional and firm to place the customer’s needs first. Financial professionals could recommend any investment product or service that would be in the best interest of a customer, and which would not provide more than reasonable compensation to the professional.

Financial Services Roundtable 600 13th ST., NW, Suite 400 | Washington, DC 20005

@FSRoundtable