My first impressions of the proposal were positive: generally speaking, IMHO, the more people who work with ERISA plans that conduct themselves as ERISA fiduciaries, the better. The notion that broadening that standard would serve to “run off” those not as committed to this business bothered me not at all.
However, and as is often the case with new regulations, areas of concern began to pop up. Those involved with the valuation of privately held stock in Employee Stock Ownership Plans (ESOPs) were initially most strident, though the work they do has a tremendous impact on thousands of employer and employee accounts. More recently, and of more interest to many advisers, the Department of Labor’s temerity in bringing IRA accounts under the ERISA fiduciary umbrella has drawn fire from “more than three thousand advisers,” according to the Financial Services Institute (FSI), which has led that charge. Indeed, having despaired of getting the ear of the Department of Labor, FSI says those letters have been directed to the White House itself. On Friday, The Wall Street Journal dedicated space on its editorial page to the issue (the author was opposed to the proposal).
Meanwhile, at a hearing at the House Subcommittee on Health, Employment, Labor, and Pensions last month, lawmakers on both sides of the aisle pressed Phyllis Borzi, Assistant Secretary of Labor and head of the Employee Benefits Security Administration (EBSA), to rethink the proposal, citing concerns that it cuts too broadly and that it could extract a financial toll as yet undetermined by the regulator (see Borzi Makes Case for Fiduciary Definition Change). And yet, by all accounts, at this point DoL remains unwilling to budge.
One ought not be too surprised, I suppose, at those lobbying so fiercely to preserve the status quo. For good or ill, this industry has grown up around the so-called five-part test for an ERISA fiduciary. Entire business practices and means of conducting business have been constructed with an eye toward avoiding becoming ensnared in ERISA’s web. Moreover, the compensation strictures imposed by ERISA would be problematic, at best, for many of those who currently serve the IRA market—even if a growing percentage of those assets have grown under ERISA’s auspices. Still, there’s an irony in the vehemence with which they protest the potential loss of valued counsel by investors—even as they refuse to embrace a standard that would require them to put the interests of those investors ahead of their own.