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SIFMA Tries to Head Off DoL With New Fiduciary Proposal

NEW YORK -- SIFMA wants a new rule and the Labor Department to get out of the way.

In the ongoing fiduciary debate, industry participants have not only sparred over what a standard should look like, but perhaps even more importantly, who should enforce it.

SIFMA issued its own proposal in an effort to reframe the debate and nudge participants closer toward its goal of a uniform standard implemented with the SEC taking the lead. The group's proposal shifts the focus to disclosure of fees and conflicts of interest.

Critics of the Department of Labor's rule say it over-emphasizes how advisors and brokers are compensated when providing certain retirement-related advice to clients.

"The current proposal [by the Labor Department] contains so many exceptions that our members think it is unworkable," says Ken Bentsen, CEO of SIFMA, who spoke on Wednesday at a fiduciary conference hosted by the organization.

The Department's proposed rule would affect advisors or brokers receiving compensation for providing investment advice to a retirement plan sponsor, plan participant or IRA owner. A spokesman for the DoL declined to comment for this article.


Ira Hammerman, general counsel at SIFMA, says the organization has been advocating for a uniform fiduciary standard for six years.

"We don't think it's in the best interest of customers to have multiple standards and multiple regulators. It's in the best interest [of investors] to have one standard of care for all their accounts," Hammerman tells On Wall Street.

Hammerman adds that SIFMA's proposal "is a tangible, concrete, good-faith effort to demonstrate what we mean by a standard of care."

The group said a best interest standard should apply across all investment recommendations and not just be limited to IRA accounts. It should also be integrated with the SEC's efforts and provide strong protections for retail clients, SIFMA says. Finally, a new standard should couple robust disclosure with enforcement by the SEC, FINRA and state regulators while maintaining investors' rights to legal action.

For example, SIFMA's rule would have firms or advisors disclose material conflicts of interest to clients in a clear and concise manner so that they understand the implications of said conflict. And, notwithstanding that disclosure, a recommended transaction or investment strategy must be in the best interests of the client.

Hammerman says that SIFMA's efforts are aimed at engaging with the Department of Labor.

"We recognize that they have a seat at the table, but not the only seat. If you're going to impact the broker-dealer and customer than you need FINRA and the SEC at that table. And I would suggest the SEC take the head seat," he says.


During a forthcoming comment period, the Department will accept input about its proposal from investors, advisors, firms and advocates. Hammerman says SIFMA is currently reading through the proposal and will provide a comment letter to the DoL. But if the proposed rule goes into effect, it's not clear what course of action will be available to the industry.

Legal experts at SIFMA's conference suggest that one possible, unintended result may be that B-Ds will move towards a fee-based model instead of commission when dealing with IRA rollovers.

"If you've got [the clients] in a fee-based account charging 1%, but there's very little movement of assets... well, wouldn't they be better off in a traditional commission-based account?" says Thomas Hennessy, partner at law firm Morgan Lewis & Bockius.

"What's a broker-dealer to do?" he asks.

Another side effect, industry insiders say, could be that brokers may turn away clients that they fear will misunderstand advice or information.

"You could be in a situation [where]… 'I'd love to sell [the client] this, but I don't think he'll get it.' That's a very awkward position that you could be put in," says Alan Wilmit, managing director and associate general counsel at Goldman Sachs.

Several speakers at the SIFMA event pointed to recent criticism of the DoL proposal by FINRA CEO Richard Ketchum.

Speaking at a conference last month in Washington, Ketchum said the Labor Department's rule could eliminate a commission-based mode of advice for investors considering IRA plans.

"Notwithstanding the strength of the present regulatory system, I believe moving to a properly designed best-interest standard is a must going forward. Notwithstanding their good faith intentions, I believe the current Labor proposal is not the appropriate way to meet that goal," he said.

Noting Ketchum's opposition, Hammerman says that "Hopefully other people will start to listen to that."

The Labor Department recently added 15 days to the comment period, which begins after a public hearing on Aug. 10. Andrew Oringer, partner at law firm Dechert, urges advisors and others to take advantage of that extension.

"I certainly think people should be commenting if they have anything that they want to say. And I think that you shouldn't assume that late comments won't be read," he says.

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