Friday, November 1, 2013

The Fiduciary Definition Fight continues

The U.S. House of Representatives approved legislation Tuesday evening, October 29th that would delay – or possibly kill – the Department of Labor’s regulatory initiative to expand the definition of a fiduciary to encompass retirement plan advisors. The bill passed by a 254-166 margin, including 30 Democrats.

The measure, introduced last summer by Rep. Ann Wagner, R-Mo., would prohibit the DOL from proposing its regulation until 60 days after the Securities and Exchange Commission has finalized a similar rule in the works to raise standards for advisors who provide retail investment advice.
On Monday, the Obama administration threatened to veto the legislation, saying that it undermines the DOL’s efforts to protect workers and retirees from conflicted investment advice.

Supporters of Wagner’s bill say the SEC must go first to ensure coordination between the agencies and avoid duplicative costly fiduciary requirements that would ultimately limit investment advice for smaller investors. Opponents say that the bill would effectively kill the DOL rule if the SEC declines to propose its own regulation.

For those who are not paying close attention to this issue, the DOL has been empowered to rule make on changes to the fiduciary definition but isn't necessarily coordinating with the Securities and Exchange Commission (SEC).  This is one of the issues causing the vote to delay, the desire to have the SEC opine before the DOL makes the rule.  The other issue is the applicability of this new rule making to Qualified Plans but also to IRAs. 

The underlying reasoning is that the current definition of fiduciary under ERISA is written too vaguely.  It is widely assumed that the new rules will pointedly define who is a fiduciary and who is not and potentially pull in a lot of non-fiduciary financial consultants into fiduciary status.  Versions of this potential new rule would also potentially create a 'non-uniform' uniform fiduciary standard. Scenarios could present themselves where financial consultants would be permitted to say that they are fiduciaries while also having the ability to have conflicts of interest with the client.  This would be the opposite of what the uniform fiduciary standard is intended for. 

Ultimately the fight will continue, it is possible that Wagner's bill will not get through the Senate or will be vetoed by the President.  More to come on this issue.

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