Many
seasoned industry professionals will remember an iconic TV commercial of some
three decades ago, produced for the E.F. Hutton brokerage firm. In this ad, when the broker shared his
insights, the world around him came to a frozen-in-time standstill, in order to
hear what he had to say. The theme was:
“When E.F. Hutton talks, people listen!”
I don’t want
to suggest that when representatives of the Department of Labor speak, the
world comes to a complete halt and gives them undivided attention. But when the subject is one which is as
controversial as proposed regulations on a definition of “fiduciary” for
retirement arrangements, the effect is similar.
Assistant Secretary of Labor Phyllis Borzi, of DOL’s Employee Benefits
Security Administration (EBSA), had a captive audience when she spoke on this
subject at the International Foundation of Employee Benefit Plans’ Washington
Legislative Update in early May.
In her
comments, Ms. Borzi seemed to show a mixture of accommodation with a hint of
impatience. She acknowledged that her
agency has slowed the pace of completing new proposed regulations to define
“who” and “under what circumstances” an advisor or investment representative should
be considered a fiduciary with respect to retirement assets. Promised August issuance of these proposed
regulations appears now to have been reset, in order to – we are told – obtain more
input from the industry and interested parties.
In fact subsequent to this May presentation, the agency’s updated
Semiannual Agenda of Regulations now lists a target date of January 1,
2015. At the same time, however, Ms.
Borzi was quoted as saying that “We’re not going to wait forever.” It is apparent this is a high priority for
Ms. Borzi and one she intends to see come to pass as quickly as possible.
It is not
entirely clear whose hand is actually on the throttle with respect to these new
regulations. Ms. Borzi has been EBSA’s
“point man,” champion, and spokesperson for them since an earlier version was
released in 2010, then withdrawn in 2011.
Yet she indicated in her recent comments that new DOL Secretary Thomas
Perez would give the order on when to issue the new proposed regulations. Adding more uncertainty is the fact that this
is a mid-term election year, when control of the Senate and House of
Representatives – really the national balance of political power – is up for
grabs. In a foretaste of the political
season to come, already we see legislation being introduced in Congress that
appears to be primarily intended to expose the opposing party to negative
publicity, and provide campaign advertising fodder in the fall campaigns. If the party now in the White House comes to
view the proposed fiduciary definition regulations as a potential political
liability, we can be almost certain that they will languish until after the
November elections. The release of the regulatory agenda seems to indicate that is exactly what has happened.Many in the industry fear that if EBSA overreaches in its new proposed regulations, advisors who are concerned about a level of responsibility out of proportion to their roles – and potential litigation – will be unwilling to advise and consult. It is feared that if this happens, retirement savers – particularly IRA savers – may find themselves underserved or abandoned when it comes to badly needed investment guidance. We do not doubt Ms. Borzi’s sincerity or good intentions. Many simply disagree on the point where agency oversight and regulatory action and investor hand-holding could tip the balance from helpful to harmful, and leave retirement savers the losers in the bargain. Taking the time to balance all the facts and to get this right seems to be the prudent course of action.
