You’ve got questions—they’ve got answers. Phyllis Borzi, chief cheerleader for the DOL’s Conflict of Interest (meaning 401(k) fiduciary) Rule, took to the department’s blog on Thursday to announce a new FAQ to help sort out the complexity and confusion surrounding its implementation.
“Earlier this year, we announced new protections to ensure that Americans who are saving for retirement will have access to financial advice in their best interest,” Borzi, the assistant secretary of labor for employee benefits security, wrote. “But smart regulation is only as effective as its implementation.”
She noted the staff of the Employee Benefits Security Administration worked for nearly six years to publish a final rule to reduce conflicts of interest in retirement investment advice, and now they will spend “untold hours making sure the rule protects retirement savers as intended.”
She then pointed to the publication of the aforementioned FAQ based on the input the department received from the financial services industry and others.
“These questions are an important part of the regulatory process as they allow the department to clarify important parts of the rule, and head off misunderstandings that could lead to bad results for retirement savers, or financial services professionals.”
Gathering these questions from multiple sources and making the answers public is another example of the sincere efforts, she said, to work with the financial services industry to craft a rule that makes sense and works in the real world of investment advice.
“Throughout this years-long project we have, at the direction of Secretary Perez, set as big a table as possible in order to get the best ideas from the worlds of financial services and consumer advocacy. I believe we have succeeded in this effort, and our continued engagement with industry will only make the rules work better.”
This FAQ, as well as those forthcoming, address questions like:
- How will the Labor Department approach implementation of the new rule and exemptions during the period when financial institutions and advisers are coming into compliance?
- The full Best Interest Contract Exemption provides that financial institutions cannot “use or rely upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause Advisers to make recommendations that are not in the Best Interest of the Retirement Investor.” Does this provision categorically preclude financial institutions from paying higher commission rates to advisers based on volume (that is, by using an escalating grid under which the percentage commission paid to the adviser increases at certain thresholds)?
- When do firms and their advisers have to comply with the conditions of the new Best Interest Contract Exemption and Principal Transactions Exemption?
“Our initial focus has been, and remains, broad compliance with the rule. If you have questions about it, come and talk to us. It’s always better to get an answer straight from the source than to drive ahead with processes or practices that may run afoul of the law.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
