Officials at the Financial Services Institute are "not hopeful" that the Department Of Labor will accede to their request to drop or modify a Department of Labor (DOL) proposal implementing stringent ERISA-based fiduciary standards over retirement accounts including IRAs, FSI executive vice president and general counsel Dave Bellaire said at the group's annual meeting in San Diego. If he is correct, the DOL ruling expected in April could prompt brokerages "to orphan" millions of small IRA accounts.
Bellaire made those remarks after FSI members sent the White House more than 5,000 letters and convinced more than 100 Republicans and Democrats in Congress to request either dropping the rule or altering it significantly.
Bellaire said he expects that "no amount" of disclosure and client sign-off would allow an advisor operating under strictly interpreted ERISA guidelines to accept commissions. The only way commissions could be acceptable would be if the DOL provided some kind of meaningful exemptive relief, which FSI officials consider unlikely.
Even if there are some minimal exemptions, the DOL probably will set up "hoops and hurdles" that raise the costs and make commission-based advice impractical, Bellaire noted.
FSI's CEO Dale Brown was somewhat more guarded in his outlook, saying that though he had not given up hope, the environment was challenging. Brown added that the FSI has worked with other associations, including the Financial Planning Association, and has established a working relationship with Labor Department Assistant Secretary Phyllis Borzi.
Congress passed the ERISA in 1974 after major abuses in some large corporations' pension plans and put regulation of pensions under the DOL, partly because legislators were concerned about the cozy relationship between financial regulators and the industry itself. "The DOL has a certain degree of mistrust of the financial services industry," Bellaire said.
The DOL is expected to put final rule proposals out for comment in April and then make them official during the summer. Assistant secretary Borzi is scheduled to speak at the FSI's first conference for advisors in September.