Comments to the DOL’s proposed fiduciary rules are in and they are aplenty

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In April, the Department of Labor finally issued proposed rules on who is a fiduciary. The DOL took 3-1/2 years and a couple of attempts to devise the proposed rules. Following their issuance of the new proposed rules, the DOL provided a 45-day period, later extended, for the public to provide comments on the new proposed rules. That comment period recently ended.

To simply say that the proposed rules are controversial is an understatement. Over 2,000 letters were sent to the Department of Labor, most of them with suggestions on how the DOL can improve, or, in a few cases, colorful suggestions on what the DOL can do with its proposed rules.

The majority of the letters appear to come from financial firms and investment professionals that provide investment products and/or investment advice to retirement plans. Comments in these letters generally express the view that the proposed rules are “unworkable”, “misguided”, laden with “critical flaws”, “overly expensive”, “confusing”, “impossible to implement”, “complicated” and other creative ways of basically saying the same thing. These opinions are not entirely surprising as the rules, once implemented, will change the way many financial advisors operate and impose additional obligations and liability on such investment providers and advisers.

Another, much smaller group of comments, come from groups or individuals representing the interests of individual employees and participants. Again, I’m not surprised that many of these letters laud the new proposed rules for finally providing much needed safeguards and protection to the presently-abused individual plan participants and beneficiaries.

Even some politicians commented to the DOL. The politicians, for the most part, express views of their constituents, or based upon the tenor of many of the letters, their larger campaign contributors.

The comment letters are interesting and, in many cases, quite informative. Some of the letters deftly point out flaws in the proposed rules that need to be corrected and supply suggested exceptions that should strongly be considered for implementation. After all, that is the purpose of having a comment period; to allow individuals to point out concerns and suggest changes that should be considered.

Nonetheless, the most interesting letter I read, and please note I did not read them all, came from Daniel Gallagher, one of five Commissioner of the Securities and Exchange Commission. The SEC is also charged with protecting the interests of individual investors, and, thus, plan participants and beneficiaries. Mr. Gallagher, apparently not a fan of the DOL proposal, wrote the following:

…It is clear to me that the DOL rulemaking is a fait accompli and that the comment process is merely perfunctory, yet I feel compelled to weigh in on the Fiduciary Proposal because I am convinced that the rule, when finalized, will harm investors and the U.S. capital markets. The proposal is grounded in the misguided notion that charging fees based on the amount of assets under management is superior in every respect and for every investor to charging commission based fees. It brazenly dismisses both suitability as a proper standard of care for brokers and the FINRA arbitration system as a mechanism to resolve disputes between financial professionals and their clients- good for plaintiffs' lawyers, bad for investors…

Like so many other bad government policies, the DOL rule will affirmatively harm those it ostensibly sets out to help.

…DOL is choosing to substitute its judgement for that of the expert regulator of broker-dealers, in the process denying investors a choice in products, services, and financial professionals.

…DOL should scrap the Fiduciary Proposal and start working in a meaningful way with the Commission to address the DOL's concerns about broker fees for retirement accounts.

Obviously, Mr. Gallagher is stating his own beliefs and is not purporting to represent the viewpoint of the SEC. Nonetheless, he raises issues that should be addressed before final rules can be implemented. Virtually everyone recognizes that protections need to be implemented to reduce the abuses perpetrated by some, albeit a very small minority, of professional advisers and investment professionals. However, perhaps the DOL should consider going back to the drawing board to come up with a less controversial set of fiduciary rules that will provide those needed protections.

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