Asset managers took lead roles among the financial service industry representatives that gathered in Washington to vehemently oppose the DoL's fiduciary standard proposal.
Many repeated the assertion that new regulations would cut off access to advice for low- and middle income investors - precisely the segment of consumers the initiative aims to protect.
In the course of the hearings, some representatives fared better than others under DoL scrutiny.
Critics have characterized the fiduciary framework as a full-out assault on the commission-based model, common to brokers who work with smaller plans and investors that don't have access to the fee-based advice provided through the RIA channel.
The Labor Department's proposal offers a path for advisors to serve retirement investors through commissions or with other compensation models that would be deemed conflicted, but it would require them to enter into a contractual arrangement with the client at the outset of the relationship. That best interest conflict exemption, known as the BIC exemption or BICE, and the principal trading exemption have become a focal point of industry opposition.
"Mutual funds alone account for about half of retirement assets in defined contribution plans and individual retirement accounts," testified David W. Blass, general counsel for the Investment Company Institute. "Fund advisors recognize the trust and confidence that retirement savers have placed in them, and they labor every day to live up to savers' expectations.
"In that vein, we agree with the department on the underlying principle behind the proposed fiduciary standard: financial advisers should act in the best interests of their clients.
"But as the long history of the department's efforts makes clear, crafting a fiduciary rulemaking is a significant undertaking and requires care and a focus on clarity and simplicity wherever possible. It is all too easy make that kind of rulemaking overly complicated and confusing. Quite regrettably, we believe the department has done just that."
Echoing Blass's critique was SIFMA President and CEO Kenneth Bentsen.
"Our concerns are not with the best interest standard," said Bentsen, who called for the SEC, rather than the DoL, to adopt a uniform fiduciary standard that would apply to brokers and advisors serving all clients, not just retirement savers.
"Rather we disagree with the process whereby one agency is developing yet another standard that will apply to only one sector of the retail investment market," Bentsen said. "It simply makes no sense that the government would not develop a holistic standard."
Bentsen took issue with the "onerous compliance regime" that would result from the DoL's proposal, which would require advisors to make significant new disclosures about compensation and other issues.
Moreover, he anticipated that the overlapping regulatory requirements, new liability risks and an impractical set of exemptions will drive many brokers out of the retirement sector altogether, or drive them to move high-end clients to fee-based accounts while severing ties with the lower-end investors who receive advice on a commission basis.
"The bifurcation of standards will create confusion for both investors and providers who must comply. We believe the rule as drafted will reduce choice and increase cost, and individual savers will have a more complex and confusing landscape," Bentsen said. "In fact the new best interest contract exemption and principal trading exemptions are so complex that a number of firms have concluded that they cannot be made operational as designed."
Nick Lane, head of U.S. life and retirement for AXA and chairman of the Board of Directors for the Insured Retirement Institute, said the proposed rule needs "additional modifications to make it workable."
"Although the preamble to the proposal clearly indicates that, under the 'Best Interest' standard, the adviser must put the client's interests first, ahead of their own, the actual wording of the standard ... seems to suggest that the advisor, as well as any affiliates, can have no interest at all."
"We support the DoL's objective of better serving clients and providing better client outcomes. We passionately believe Americans deserve dignity in retirement, financial protection for their families and an empowerment for financial literacy. Advisors should work in the best interest of their clients," he said. "But we have justifiable concerns that there will be significant and negative unintended consequences."
IRI's President and CEO Cathy Weatherford, in written comments to the DoL, said some of the consequences could include limiting consumers' access to annuity products "at a time when we should be encouraging and promoting lifetime income strategies as a source of retirement income that cannot be outlived."
The Plan Sponsor Council of America said that while it supports the goal of extending ERISA's fiduciary protections, it would like to see further clarification in the final rule, including model language and additional examples.
Stephen McCaffrey, chairman of the board at PSCA, which represents employee benefit plan sponsors, said in his remarks during Monday's hearings that "PSCA supports the core goal and approach of the proposed rule in extending the protection of ERISA's fiduciary standard. We believe our retirement system will be greatly strengthened by ensuring that investment advice is provided in the recipient's best interest."
He added that, "PSCA views the proposed rule as a means to protect pre-retirees and retirees as they approach the phase where they begin withdrawing retirement assets. However, after reviewing and discussing the proposed rule with a significant segment of our members, it is clear that additional clarification on many of these provisions is needed to avoid regulatory confusion."
It recommended that the DoL amend its rule so that investment education materials that include asset allocation models or interactive investment materials would be allowed to identify investment alternatives available under the plan without that identification being deemed as investment advice.
In its annual survey of retirement plans, PSCA found that the main reason for providing education among plans of all sizes is to increase participation, increase appreciation for the plan and increase deferrals.
PSCA believes there are ways to allow plan sponsors to identify specific investment options without "risking the abuses described by the DOL," he said. "Proposals that are based on neutral, informative descriptions of the participant's options should be permissible under the carve-out. In providing this neutrality, the focus should be on the factually comparative nature of the information and whether it is being provided in a manner that does not rise to the level of a recommendation."
Despite these arguments, the DoL maintained a tough line of questioning.
In arguing as to why some of the rule's provisions are unnecessary, Charles Nelson, CEO of Retirement at Voya Financial, argued that clients already understand the difference between sales and advice.
"We think that [retirement plan] participants can distinguish between a sales presentation and advice," he said.
"Why do you think those are two different things, really?" the panel's chairman Timothy Hauser, a deputy assistant secretary in the department, asked Nelson in response, as part of a lengthy back-and-forth.
"I've heard the sales-advice dichotomy being drawn by lots of people," Hauser told Nelson, "but, as a rule, you know, aren't both things happening? Aren't people looking to your representatives for professional guidance on how they manage their money, even as they also understand that you may be selling them something?"
"Not necessarily," Nelson responded.
"That's a fascinating question," Nelson continued, "because in every commercial transaction there is someone who is providing the service or product and there is someone who is consuming or purchasing that product or service. You don't necessarily know what types of services or products that someone may ultimately select from and there could be a wide range so that, you know, in your characterization, I'm not sure that's completely fair to say that all participants want advice because some may want more advice, some may want just some education and some information."
Hauser tried a different, if related, line of inquiry.
"Before your representatives make a recommendation to somebody on how to invest their retirement assets," he asked, "do they make any inquiry into their individual circumstances?"
"Sure," Nelson said.
"Do they try to ensure that, at a minimum, that recommendation is suitable for them in light of their particular circumstances?" Hauser asked.
"Again," Nelson said, "it depends on the types of recommendations ..."
"What do your representatives call themselves in their dealings with your customers?" Hauser continued. "Do they call themselves 'salesmen' or do they use some other nomenclature?"
"Representative of Voya Financial," Nelson responded.
"That's it? They don't call themselves advisors or consultants or investment professionals?" Hauser asked. "Do you have a preferred corporate term that your people use?"
"We do," Nelson said
"What is that, what is that?" Hauser asked.
"Well we have about 6,000 employees and lots of different titles, OK?" Nelson responded, "So, in fairness, you know, I'm not going to go through all 6,000 titles for ya, save you the torture there. However ..."
"That is too many categories to manage, I would think," Hauser responded.
"It takes a lot to be able to distinguish the different types of roles," Nelson said, "and, so, I think it depends on whether you are talking about a call center rep, you are talking about a representative that is working with advisors ... to 401(k)s or whether you are distributing 457, 403(b) plans or retail advisors as well."
After pausing, Hauser pressed on.
"OK, so let's maybe just take the latter," he said. "Do they call themselves advisors when they are dealing with their customers?"
"In our Voya Financial Advisor Network, many of them would yes," Nelson said. Later in the day during another panel, Hauser made it clear that apparently neither Nelson, nor anyone else had managed to convince him that it's a simple thing to understand the difference between sales and advice.
"I confess, I don't understand the distinction," Hauser said, "You can both have advice and a sale."