Asking the Department of Labor (DOL) and Securities and Exchange Commission (SEC) to harmonize their fiduciary rules would create "significant challenges," as the fiduciary standards under the Investment Advisers Act and the Employee Retirement Income Security Act (ERISA) are "quite different," fi360 told members of Congress last week.
Blaine Aiken (left), fi360's CEO, and Duane Thompson, senior policy analyst for fi360, told members of the House Financial Services Committee that if the SEC and DOL were to truly harmonize their rules, then the agencies would be left with one of two stark choices: require the SEC to impose a higher standard commensurate with ERISA standards, or require the DOL to violate ERISA requirements and thereby weaken the strong fiduciary protections now afforded to retirement plan participants.
Stated another way, Aiken and Thompson said, "it is our view that an act of Congress is necessary to clear up conflicting areas of the two laws and to provide both agencies with sufficient guidance to proceed if rules harmonization were the primary objective (which, by the way, we believe is neither wise nor consistent with longstanding public policies in this area of law)."
Even Phyllis Borzi, head of DOL's Employee Benefits Security Administration (EBSA) and chief architect of the fiduciary rule, has already said that harmonizing both rules isn't likely to happen. She said in a May interview with Investment Advisor that although there is a "primary commonality" between the SEC's Dodd-Frank project to put brokers under a fiduciary mandate and EBSA's fiduciary project, which is "to be more clear as to who is a fiduciary under [DOL and SEC's] respective statutes," it's impossible for the two to come out with one fiduciary standard as the statutes they adhere to are "so very different."
She reiterated this in June at an industry conference by stating: "I will not promise anybody there will be a single fiduciary standard." However, she added that compliance with EBSA's fiduciary standard "won't put you out of compliance with another [fiduciary] standard" such as the SEC's. Borzi couldn't say, however, when a reproposal of the DOL's fiduciary rule would occur.
When asked by AdvisorOne on Monday whether the DOL would issue a fiduciary reproposal by year-end, DOL spokesman Jason Surbey said that Borzi maintains the department "is going to take the time to draft a proposed rule that provides robust protections to the millions of participants in 401(k)-type retirement plans and IRA investors nationwide, protections that are consistent with those already provided for by law."
In practice, Aiken and Thompson wrote in their letter to lawmakers, it is not uncommon for a financial advisor to be asked to review a client's household assets, such as a nonretirement brokerage account and a tax-deferred 401(k) account, for the purpose of assessing the client's retirement goals.
