Little surprise, Phyllis Borzi’s keynote during opening festivities at the Fi360 annual conference in Nashville had the rapt attention of attendees for the better part of an hour on Sunday afternoon.
“Contrary to popular belief, I did not orchestrate the John Oliver piece,” was just one of the gems to come from the session, as Borzi described the thought-process and political procedures in the development of the fiduciary rule while she was Assistant Secretary of Labor of the Employee Benefits Security Administration (EBSA).
Prior to her speech, The Committee for the Fiduciary Standard’s Kate McBride presented Borzi with the “Fiduciary of the Year” honor for her role in developing and releasing the rule.
Taking an informal, conversational tone, Borzi began by noting there’s no Consumer Reports for achieving a sustainable amount of retirement income, and she decried the plethora of industry designations that too often confuse and confound the general investing public.
“I have a friend who loves exotic cars,” she related. “One day, her mechanic informed her he took a four-hour online course, and was now a financial advisor. She already had a trusted relationship with him because of her cars, but she wasn’t about to give him her money, but there are people who would.”
She noted that she initially told staff that they were going to “take on” the financial services industry, the second most powerful lobby behind pharmaceuticals, and that she was ridiculed by opponents once the process started for saying she felt like “it was Groundhog Day,” due to the industry organizations who repeatedly sought meetings.
One thing she and the department “did not do wrong,” she emphasized, “was that we never stopped talking to the public,” throughout the period of the rule’s development, both when the first proposed-rule was pulled, and when it was eventually reintroduced.
Praising former labor secretary (and current DNC chairman) Tom Perez, she said he initially told them “to be smart, strategic, passionate, articulate and always looking for that sweet spot. He also instructed us to listen, create a big table, invite everyone to sit at the table, and to be humble.”
Contrary to recent reports of possible turf wars under President Trump, Borzi said she enjoyed “a good relationship with the SEC, and was thankful for their support and expertise.” She also noted that while she could not share information with FINRA and the NAIC, as they are not government agents agencies, she and her team met with them.
“No one can say with a straight face that we didn’t listen to, and accept insight from, all stakeholders,” she argued. “But if you look at the lawsuits, particularly from the insurance industry, they say we didn’t listen, which is not true.”
She then mentioned Trump’s executive memorandum of February 3, and noted three “interesting” things (she said she was about to use another description, but tempered her language).
“He’s always very ceremonial with his black felt pen, and Washington insiders know there is a hierarchy to these things, but No. 1, he wanted to know whether the anticipated applicability of the rule was already harming investors; No. 2, whether the applicability will result in the dislocation and disruption of financial services, and; No. 3, if there would therefore be an increase in lawsuits that would lead to a corresponding increase in costs for consumers.”
She noted all three only focused on costs, and not the offsetting benefits.
“All regulation causes disruptions and/or dislocations, which is the point. If it didn’t, it means there wasn’t a problem to regulated to begin with.”
Despite the fact that she told her staff that they were going to “take on” financial services, Brozi did not consider her fiduciary rule opponents enemies.
“Today’s adversaries are tomorrow’s allies,” she quipped, and added that she never couched it as a “Wall Street versus Main Street fight.”
“I’m proud of what we’ve done because we were a catalyst for change that is not going back,” she added.
Referencing Vanguard founder and industry elder statesman Jack Bogle, whom she called a “hero,” and was thrilled when he referred to her in the same way, she said “when your client does well, your business does well. Those not acting under a fiduciary standard will be punished in the marketplace.”
Closing with the aforementioned anecdote about HBO’s Oliver, and his segment on 401(k) fees, she said that the show’s producer wanted the DOL to evaluate the fees on the plan the show had with John Hancock.
“We said no, because that’s not us; we’re not a Good Housekeeping seal of approval,” Borzi concluded. “I was terrified that we would be slammed as these deadbeats at the DOL that could not help consumers figure out if they were paying too much or too little in fees, which was what John Oliver wanted to know. As a plan sponsor, he was worried.”