Reuters: Regulatory News: UPDATE 1-US Labor Dept grinds through fiduciary rule analysis

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UPDATE 1-US Labor Dept grinds through fiduciary rule analysis Jun 22nd 2012, 21:21 Fri Jun 22, 2012 5:21pm EDT * Labor official updates on controversial advisory rule * Says disappointed with industry response to data request * SIFMA says Labor Dept couldn't guarantee confidentiality By Suzanne Barlyn June 22 (Reuters) - The Labor Department is reviewing a "wide array of evidence" to assess whether the benefits of its anticipated fiduciary rule for advisers serving retirement plans would outweigh its costs, a top official told two U.S. lawmakers in a letter this week. Its analysis will focus not only on the economic impact the rule will have on workers and retirees, but also on retirement plan sponsors who often rely on advice from experts to carry out their legal responsibilities for managing assets, the department advised lawmakers in a letter dated June 20. Phyllis Borzi, assistant secretary of the Department of Labor's Employee Benefits Securities Administration, wrote to update lawmakers on the development of the controversial rule that would impose a higher fiduciary standard of care on advisers serving retirement plans. Members of the U.S. House Committee on Education and the Workforce requested the update during a hearing in March, according to the letter addressed to Representative John Kline, a Republican from Minnesota who chairs the panel, and the ranking Democrat, George Miller from California. The department in September withdrew an initial rule it proposed in 2010 after industry groups and lawmakers expressed continued concerns about costs to the industry and whether the new rule would clash with a separate fiduciary proposal being considered by the U.S. Securities and Exchange Commission. While department officials said they expected to issue a revised proposal early this year, it has not yet materialized. Borzi, in the letter, did not suggest an anticipated date. The new standard would also would apply to those who provide advice about individual retirement accounts to investors. Many financial advisers are concerned the proposal will limit the types of fees they can collect for servicing IRA accounts and ultimately prevent them from continuing to provide that advice. As part of its analysis, the department has requested a broad range of data about customer accounts from securities industry groups. It was, however, "disappointed not to receive many of the suggested data elements from industry sources," Borzi wrote. "(W)e have met with industry representatives and asked them to provide whatever information they had that would be useful to our efforts," she wrote. A spokesman for the Securities Industry and Financial Markets Association said the group had worked diligently to assess what relevant information could be made available to the department for their cost-benefit analysis. But SIFMA said the department could not guarantee the confidentiality of the information. "Obviously, respecting our client's private financial information is our first responsibility," said the SIFMA spokesman. A Labor Department spokesman was unable to immediately respond to SIFMA's comment. A representative of the Financial Services Institute was not immediately available to comment on Borzi's letter. The department also addressed concerns about aligning its anticipated rule with the separate fiduciary proposal the SEC is considering. That possible rule proposal would require brokers to recommend securities that are in their clients' best interests, instead of recommendations that are "suitable" based on factors such as age and risk tolerance. Borzi and another top Department of Labor officials met with SEC Chairman Mary Schapiro on June 6 to discuss several high-level regulatory issues, including coordination of regulatory and enforcement responsibilities, according to the letter. As part of its cost-benefit analysis, the Labor Department also requested data for a 2010 study that SIFMA commissioned and sent to the SEC in 2010 showing potential costs for clients if brokerages were held to a fiduciary standard. The study, conducted by consulting firm Oliver Wyman, found that forcing investors with $200,000 or less to pay their adviser a fee based on their assets, rather than pay commissions for individual trades or product purchases, would reduce expected returns for the client by more than $20,000 over 20 years. The Consumer Federation of America, an advocacy group, rejected the study's findings in a letter to the SEC that same year, saying it was based on the "false claim" that brokers would no longer be able to charge commissions if held to a fiduciary standard. Link this Share this Digg this Email Reprints

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