The head of the Financial Services Institute has delivered a pointed letter to House committee leaders criticizing the efforts of the Department of Labor in developing a new definition of the term "fiduciary" that would cover financial professionals providing advice to retirement plans.
FSI CEO and President Dale Brown took issue with a letter that Phyllis Borzi, the Labor Department's assistant secretary of the Employee Benefits Security Administration, had sent to the same lawmakers last month. In that letter, Borzi, who is overseeing the fiduciary rulemaking, expressed disappointment about the incomplete response to a request for data the department had sent to industry trade groups, including FSI.
The FSI received that request Dec. 20. The Labor Department was seeking comprehensive data describing every investment, investor and recommendation that FSI member companies had been involved with over the previous 10 years.
Given the short window -- the department wanted a response within 30 days -- and the scope of the request, which sought sensitive information and data points that many FSI members do not record, Brown described it as patently unreasonable.
"Such a sweeping request was impractical on its face. Generating a decade's worth of data in the manner requested by the department is a difficult if not impossible task under any circumstances," Brown wrote. "However, the challenge associated with the department's request was increased by other important factors."
Count among those factors the year-end accounting and reporting chores that member companies were dealing with at the time of the request, as well as leaner staffing conditions owing to the holiday season.
"While our members were, in principle, willing to be of assistance, they were unable to provide data, for a number of reasons," Brown said.
In addition to the logistical challenges of compiling such a sizable data set, FSI members do not maintain certain types of information relating to accounts overseen by independent financial advisers, Brown said. Then, too, some of the data that the department was seeking would be impossible for broker-dealers and advisers to provide, either because they don't collect the information at all or do not retain it for the 10-year period outlined in the request.
FSI's letter to Reps. John Kline (R-Minn.), the chairman of the Education and Workforce Committee, and George Miller (D-Calif.), the ranking member on the panel, is the latest example of the friction between the trade group and the Labor Department.
In October 2010, the department released a draft proposal to update the term "fiduciary" under the 1974 Employee Retirement Income Security Act (ERISA) to close what officials described as a regulatory gap. The Labor Department has argued that an update of the rule is necessary to account for the shift from defined-benefit pensions to IRAs and other defined-contribution retirement plans. The department is particularly concerned with addressing the potential problem of conflicts of interest, and is seeking to ensure that financial professionals are acting in their clients' best interest when they advise a covered retirement plan or its investors.
But the FSI and other critics have warned against overly broad mandates that could expose broker-dealers and financial advisers to excessive legal liability, potentially driving them away from a commission-based advisory model, or even the entire market for covered retirement plans.
A spokesman for the Labor Department did not immediately respond to a phone message seeking comment, but just last month, in a letter to the House committee leaders, Borzi wrote that the "department was disappointed not to receive many of the suggested data elements from industry sources," but that labor officials had been meeting with industry groups and were working to synthesize the data they had received.
The meeting with FSI representatives took place on Jan. 27 of this year. The trade group reiterated its concerns with the data request to DoL officials, and stressed the potential privacy implications of turning over detailed investor information, while also questioning the fundamental premise of the department's request.
"The data request suggested that the department believed it could draw conclusions about the impact of conflicts of interests faced by brokers or others who advise IRAs from investment returns or trading histories in IRA accounts," Brown wrote. "We disagreed with that premise because, among other things, investors make decisions for a myriad of reasons (e.g., financial need, emotional reactions to the market, etc.) that are unrelated to the nature and quality of the advice provided."
Brown also said that FSI later provided the Labor Department with copies of its annual broker-dealer benchmarking studies from 2009 to 2011, though those reports are concerned with the management and operations of broker-dealer firms and do not contain the investor-level data the department was seeking.
FSI's criticism of the Labor Department's conduct in the fiduciary proposal -- both its data request and its collaboration with the Securities and Exchange Commission, which is conducting a similar but separate proceeding under direction of the Dodd-Frank Act -- echoes the complaints found in a letter signed by 33 House Democrats that was delivered to Labor Secretary Hilda Solis last month.
But Borzi, in her letter to workforce committee leaders a week earlier, claimed that the Labor Department had been collaborating extensively with the SEC. In addition to "ongoing staff-level communications," Borzi told the lawmakers that she and a deputy met with SEC Chairman Mary Schapiro on June 6 "to discuss a variety of high-level regulatory issues, as well as the extension and enhancement of an existing memorandum of understanding between our agencies to better ensure the coordination of our important regulatory and enforcement responsibilities."
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