Critics of an effort at the Department of Labor to extend fiduciary responsibilities to retirement plan advisors scored a victory this week when the agency disclosed that it is pushing back the rollout of its proposal until at least next year.
The Labor Department's fiduciary proposal has drawn sharp criticism from a range of actors, including business groups, lawmakers and Wall Street lobbyists, who have argued that the rules would limit access to retirement plans and advice for middle-income Americans.
"From day one, this has been a troubled proposal by DoL that will harm the ability of everyday American investors and small business owners to save for retirement," says Kenneth Bentsen Jr., president and CEO of industry group SIFMA.
Bentsen urged the Labor Department to defer to the SEC, which has been working on its own proposal to expand fiduciary responsibilities to brokers to better align with the regulatory obligations of investment advisors.
"Premature actions by the DoL, whether now or in January, could undermine the SEC's work to improve upon the standard of conduct owed by broker-dealers and investment advisors to retail clients," Bentsen says.
Assistant Secretary of Labor Phyllis Borzi, the head of the Employee Benefits Security Administration and the leading exponent within the department of new fiduciary rules, has argued that plan providers and advisors too often operate under conflicts of interest that result in substandard advice for investors.
Borzi had said that the Labor Department was aiming to issue its rule proposal in August, though she readily acknowledged that the date could slip. Under its new guidance, the DoL is now looking to January 2015 to issue its proposed rulemaking, which would set in motion a process of comments and workshops to collect feedback from the various stakeholders.
A spokesman for the DoL did not immediately respond to a request for comment on why the projected delivery date had been pushed back.
Already, the department has gotten an earful. Powerful interest groups such as SIFMA, FSI and the Financial Services Roundtable have been vocal in their criticism of the rules, warning that the threat of legal liability could cause many brokers to abandon the retirement market, leaving smaller plan providers to fend for themselves.
Supporters of the fiduciary proposal counter that it's a needed investor protection, particularly at a time when workers are having to shoulder more of the responsibility for their retirement planning. But they acknowledge that the Labor Department has been taking a hit in on the messaging front.
Knut Rostad, president of the Institute for the Fiduciary Standard, suggests that the delay will give the department a chance to recalibrate how it sells its proposal to skeptical members of Congress and a hostile industry.
"DoL did the right thing," Rostad says. "Fiduciary duty has been so maligned in Washington it resembles Hurricane Sandy for many people. There is now an opportunity to step back and reboot the outreach strategy."
Barbara Roper, the director of investor protection at the Consumer Federation of America, is less welcoming of the DoL's move to push back its rulemaking, arguing that that delay will effectively allow industry groups to persist in what she sees as a campaign of misinformation about the potential impact of the rules.
"While I wouldn't say I see the delay as a setback exactly, it is dangerous," Roper says. "The industry has really been amping up its opposition in recent weeks, relying on phony studies and scare tactics to sell [the] message that middle income investors will lose access to services. As long as the rule remains bottled up at the agency, the industry will have free rein to grossly mischaracterize the DoL's likely rulemaking approach and fight the rule based on fiction rather than fact."
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