The CFA harshly criticized regulators for not enforcing the DOL’s fiduciary rule in the face of industry lobbyists’ repeated claims that brokerage firms are responding to the rule by shifting retirement savers into fee accounts when they would be better off in commission accounts, exposing investors to increased costs in the process. Ironically, many broker-dealers looked to curtail the use of commission-based accounts last year in order to comply with the DOL rule.
“Through its non-enforcement policy, the DOL has sent a message to broker-dealer firms that they can flout the requirements of the rule, harming retirement savers while the DOL looks the other way,” said CFA Financial Services Counsel Micah Hauptman.
If true, that would be a clear violation of the DOL rule provisions, as well as parallel requirements under SEC and FINRA standards, requiring firms that offer both fee and commission accounts to recommend the type of account that is best for the customer. It would also clearly violate the DOL rule requirement that compensation for fee and commission accounts alike be reasonable, based on services offered.
“If firms are inappropriately shifting retirement investors into fee accounts and charging them excessive fees, as industry lobbyists have claimed, there’s no way the Department could conclude that firms are making a good faith effort to comply. This lack of agency enforcement only confirms the need for a strong and independent enforcement mechanism, which only the full rule provides,” Hauptman added.
But the CFA also held out the prospect that such criticisms may be the smoke and mirrors of competing segments within the securities industry. As of yet, the group nor regulators have delivered definitive proof of broker wrongdoing.
CFA’s Director of Investor Protection Barbara Roper admits as much. “It’s possible that industry lobbyists are simply engaging in their all too familiar misrepresentations of the rule’s impact, and it is important to note that those making this claim have failed to provide concrete evidence to back it up,” said CFA. “After all, we know that, contrary to their earlier assertions, the vast majority of firms have chosen to continue offering commission accounts under the rule.”
The Consumer Federation of America, responding to inter-industry gossip and as-yet unproven allegations about alleged broker attempts to overcharge investors, sent letters this week to U.S. Labor Secretary Alexander Acosta, Securities and Exchange Commission Chairman Jay Clayton, and FINRA President and CEO Robert Cook urging them to investigate potential rule violations related to broker-dealer firms’ improper implementation of the U.S. Labor Department's conflict of interest, or “fiduciary," rule.
B-D's Move To AUM Fees Violates DOL Rule, CFA Charges
October 5, 2017
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"The CFA harshly criticized regulators for not enforcing the DOL’s fiduciary rule in the face of industry lobbyists’ repeated claims that brokerage firms are responding to the rule by shifting retirement savers into fee accounts when they would be better off in commission accounts, exposing investors to increased costs in the process. Ironically, many broker-dealers looked to curtail the use of commission-based accounts last year in order to comply with the DOL rule." The Federal government, doing for the financial services industry what they did for the healthcare industry. Made it a complicated, user unfriendly expensive mess. Geez, these educated derelicts could mess up the gas can. Oh wait...
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Gee, a government mandate with unintended, potentially negative results, who would have guessed? Well, anyone with a memory would have guessed. The b/d community is being forced to move accounts into fee based accounts due to the DOL mandate. The exception requires client to sign an "exception", known as the "Best Interest Contract Exemption" which not only causes concern because it is an "exception", but because it also limits the products clients can be offered. Like so many things the government does, the regulators have never provided investment accounts, have never worked with clients, have zero investment experience, but have the ability to tell professionals how to do things the regulators have never done and have no training or experience in doing. Sorry CFA, this was brought on by the government not the broker/dealer community. You don't like, have DOL change it. We don't like it either.