YIELD OF DREAMS: FSI to DOL-You’re On Your Own

YIELD OF DREAMS: FSI to DOL-You’re On Your Own

Last September, the Department of Labor announced it would repropose its rule on the application of the fiduciary standard to retirement accounts.

Last September, the Department of Labor announced it would repropose its rule on the application of the fiduciary standard to retirement accounts. This was a major coup for the Financial Services Institute, which has been vehemently opposed to the rule. But in a recent letter in response to the DOL’s request for information, FSI basically said it couldn’t help.

According to the letter, the DOL requested information on account-level IRA data on Dec. 15, but that was not enough time for the FSI to get the appropriate data requested. FSI President and CEO Dale Brown also said that the group doesn’t maintain the data on IRA accounts. While some of its members do maintain that data, they don’t have access to much of it; it’s not readily retrievable; and it would be a huge undertaking to collect, which was not feasible by the Feb. 24 deadline. FSI did, however, provide extensive data from its member surveys.

In addition, the letter outright questioned the DOL’s motives for requesting that type of data, calling it a “treacherous basis on which to regulate”:

At the outset, we note that we have serious doubts about the premises and methodology implicit in the Department’s data request. The data request suggests that the Department could draw conclusions – sufficiently reliable to base an enormously consequential regulation like the ERISA fiduciary definition – about the “impact, if any, of conflicts of interests faced by brokers or other[s] who advise IRAs … on IRA investors” from investment returns or trading histories in IRA accounts, analyzed against a (unavoidably, select and less than comprehensive) range of variables. We respectfully disagree, for the following reasons:

Investment activity and results do not by themselves capture the value of the services provided by financial advisors, whether acting in a broker-dealer or investment advisory capacity. Financial advisors provide value to IRA investors in many ways other than the investment recommendations or advice they provide…

Even if the focus is narrowed to investment services, neither investment returns, nor trading history, nor any of the other investment data the Department requested is a valid indicator of whether the IRA owner has been effectively and impartially served by a financial advisor… Even if the Department had access to perfect information – including all the nuanced, personal information about the IRA investor and his or her objectives and needs that financial advisors routinely take into account but do not fit neatly into a data set – in the end the Department inevitably would be making its own subjective, 20-20 hindsight judgment, from a paper record, about the professional advice and motivations of financial advisors. This is a treacherous basis on which to regulate.

In other words, they’re not just going to hand over their secret codes, especially if the data could potentially be interpreted as conflict of interest on the part of the advisor. If that’s what the DOL’s looking for, they’re out of luck. We all want investors to be more protected, but at this point, it sounds like a solution looking for a problem. And the FSI is not going to fuel the DOL’s fire. What do you think? Is the FSI barking up the wrong tree, or should it be a tree it should avoid altogether?

(Read more from Staff Writer, Diana Britton on her blog, Yield of Dreams.)

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