By Knut Rostad
Saturday’s column by Jason Zweig may be the official start of the battle in Washington between the Department of Labor (DOL) and the brokerage industry regarding an anticipated DOL rule to modernize ERISA to, as Zweig points out, ensure brokers act “solely for the benefit of their clients when advising on individual retirement accounts.” The rule has NOT been released and its provisions are unknown. It may be released in October.
Zweig’s column sets out the opposing arguments in their sharpest form to date. With the debate lines clearly drawn, the arguments invite scrutiny.
Assistant Secretary of Labor, Phyllis Borzi maintains the “Conflict of Interest Rule” will seek to reduce conflicts of interest in the retirement investment marketplace by, among other things, making “advisers legally accountable for the advice they provide.”
The brokerage industry, represented by the Securities Industry and Financial Markets Association lobbyists (SIFMA), whose new president, former Senator Judd Gregg, just recently took the helm of SIFMA. Gregg represented New Hampshire in the Senate for eighteen years and became a highly respected member and then Chair of the Budget Committee.
Gregg insists, as quoted by Zweig, about the new rule, — a rule that has NOT been released and its provisions are unknown — “It’s a dangerously large expansion that would chill all kinds of activity. Its going to be destructive. The folks with small accounts are going to lose the ability to get advice, and their costs will go up.”
The DOL seeks to reduce conflicts of interest and the securities industry replies that doing so would be “destructive” and result in “small accounts” having no access to advice or guidance.
The crux of the brokerage industry argument seems to be this. The brokerage industry can no longer afford to act “solely for the benefit of their clients,” as it is legally required to do. However, the industry clearly implies it CAN afford to provide conflicted advice, which it is also generally prohibited from doing by law.
1. How do brokerage industry lobbyists account for the many brokers who currently provide fiduciary advice and wish to continue doing so? Are the views of industry lobbyists and fiduciary brokers aligned — or do they clearly diverge?
2. How should the brokerage industry’s admission that it will not be able to meet the requirements of the law be viewed — when, at the very same time registered investment advisers are NOT opposing it? Should the brokerage industry’s argument
be considered, at the very least, a public admission of a failure to adapt with the times and to compete successfully on an even playing field? Would not such an admission of a failure in other industries where competitive market forces matter have dire consequences for the industry and the those responsible for the failure?
These are just a few questions that the brokerage industry’s arguments should raise. There are many others. Let the debate continue.