THE BLOG

Industry to DOL: (Don't) Mind Your Own Business

02/24/2015 03:59 pm ET | Updated Apr 26, 2015
Andrew Harrer/Bloomberg via Getty Images

Financial services firms and their lobbyists have been dusting off a new argument in their war against strengthened protections for retirement savers. In addition to shedding crocodile tears over the potential harm to middle-income savers if brokers have to start acting in their customers' best interests, they have increasingly voiced their outrage that the Department of Labor believes it has a role to play in regulating retirement advice.

As SIFMA President and CEO Ken Bentsen protested in a recent public statement, "the brokerage industry is highly regulated by the SEC and FINRA, including with respect to retirement accounts." Like most of the industry's arguments against the DOL's conflicted advice rules, this manages to be both irrelevant and wrong.

It is wrong because it is the DOL, not the SEC and FINRA, that has exclusive rule-writing authority under the Employee Retirement Income Security Act (ERISA), and thus primary jurisdiction in the area of advice to retirement savers. And it is wrong because the SEC has not applied an appropriately high standard to broker-dealers' retirement advice.

The SEC and FINRA have no authority in broad areas covered by the proposed rules.

While much of the research and public discussion of the DOL rules has focused on the need to apply a best-interest standard to recommendations regarding 401(k) rollovers, the rules are not so limited. They will close regulatory loopholes in areas where the DOL has exclusive jurisdiction, such as defined benefit and defined contribution pension plans. Even where the SEC and FINRA do share authority -- with regard to recommendations to Individual Retirement Account holders -- their jurisdiction is limited to recommendations about securities. An abusive broker could evade their authority, but not DOL's, simply by recommending equity-indexed annuities or other non-securities investments.

The SEC has failed to use its authority to strengthen protections for retirement investors.

While we welcome recent statements from the SEC and FINRA that they will be taking a closer look at brokers' rollover recommendations, they will be applying a suitability standard, not a best-interest standard, when they do so. That is because the SEC has taken no action to require brokers who market themselves as objective advisers to meet the fiduciary standard appropriate to that role. Retirement savers making what for many is the most important financial decision of their life need stronger protections than current regulations provide against advisers who seek to profit at their expense. While we hope the SEC will eventually get around to strengthening its standards in this area, it has been actively considering regulatory action for nearly a decade with nothing concrete to show for it.

Retirement savers need both the SEC and DOL to act if they are to receive comprehensive protections against bad advice from conflicted advisers. The DOL, at least, appears poised to act.