Could Feds Kill DoL Fiduciary Regulation?

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WASHINGTON -- Has the debate around the Department of Labor's fiduciary proposal become so heated that the administration will shelve the controversial proposal?

At least one opponent says it's possible.

Stephen Saxon, the chairman of the Groom Law Group, has been meeting with senior administration officials to express opposition to the pending regulations. And speaking this week at the Insured Retirement Institute's regulatory conference, Saxon noted that the concerns from the financial industry about the proposal -- which would extend fiduciary responsibilities to advisors providing retirement advice to plans and individuals -- have resonated at the highest levels of the government.

"The fiduciary reg is probably the most important regulatory initiative that we've had here in Washington in the last 20 years. It's also the most controversial," Saxon says. "Rarely do you see the level of interest at the White House and OMB and others have had in the fiduciary reg."


The Labor Department and fiduciary advocates have argued that the rules are necessary to address conflicts of interest in the advice offered to investors, particularly as they consider how to handle their employer-sponsored 401(k) plans as they head into retirement.

But opposition from groups like SIFMA and FSI remains strong, and scores of lawmakers on both sides of the aisle have warned that the rule could deprive millions of middle-income Americans of retirement advice and potentially create other unintended consequences.

The Labor Department first rolled out an initial proposal in 2010, but withdrew it the next year amid sharp criticism from industry groups and members of Congress, who warned that the new obligations -- and the associated liabilities -- would compel scores of advisors and other professionals to abandon the retirement space, leaving millions of Americans without advice.

The DoL has since been revising those rules, promising a far more rigorous cost-benefit analysis and a fuller complement of exemptions to permit commission-based sales and other common industry practices. That redraft has been delayed as well, however; most recently, the department pushed back the target date for its proposal, from August to next January.


Saxon appears to be hoping that the delays could amount to an eventual defeat for the proposal. He cites the White House scrutiny and signs -- among them, a pair of dueling columns that recently appeared in the Wall Street Journal and the New York Times -- that what was once an arcane policy argument is going mainstream.

"The question is whether we have a fiduciary reg at all," he says.

Phyllis Borzi, the assistant secretary of labor who has been the public face of the proposal, has insisted that it is a needed investor protection. She also, however, stresses that the reintroduction of the rules will be only a first step. The proposal will then be subject to comments from the public and will be considered in multiple open forums that the department will convene to discuss the potential impact.

That process, which will surely be attended by fierce opposition lobbying and congressional scrutiny, could drag on so long that the administration ultimately determines that it's not worth the political price, Saxon suggests.

"If you think about it in terms of, 'Do they have a realistic possibility of getting this thing done?' -- well, they're going to have to go through a multi-month comment period, and they're going to have to go through hearings, and they're going to have to digest all that information," Saxon says.

"Can they get that all done before we're in the middle of a 2016 election?

"The White House is looking at this," he adds. "My personal belief is that the White House is going to continue to look hard at ... whether they want to go forward with this reg -- because of the election, because of the controversy, because it's irritating a lot of those of us who work in the financial services space."

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