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VIDEO: FSR Testifies at DoL Hearing on August 10, 2015


A Look at the DoL Fiduciary Comments

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Key Letters Filed

Click on the links below to see the full letter.

 

 

DoL Fiduciary Proposal Will Limit Needed Retirement Planning



FOR IMMEDIATE RELEASE
August 10, 2015

Contact: Erika Reynoso
202-589-2410 | @fsroundtable
Erika.Reynoso@FSRoundtable.org

Contact: Alison Hawkins
202-589-2410 | @fsroundtable
Alison.Hawkins@FSRoundtable.org

FSR Testifies to DoL: Fiduciary Proposal ‘Extremely Complicated’, Harmful to Retirement Savers;

Retirement savings, ‘Best Interest’ Standard Better Achieved Through FSR’s SIMPLE PTE

Washington, DC— The Financial Services Roundtable (FSR) cautioned the Department of Labor in testimony today that implementation of its fiduciary proposal will harm Americans’ ability to adequately save for retirement, limit access to financial advice and guidance for lower and moderate-income Americans, and overwhelm retirement savers with mountains of disclosure and red tape.

“The proposal is extremely complicated and impractical, and would adversely impact retirement savings, particularly for lower- and moderate-income Americans,” FSR’s Vice President and Senior Regulatory Counsel Felicia Smith said in written testimony. “Let’s fully enforce existing laws to remove ‘bad actors’ from the industry and further ensure all customers receive investment advice that is in their best interest.”

FSR urged the DoL to instead adopt FSR’s ‘SIMPLE’ proposal, which is intended to accomplish a customer best-interest standard in a more straight forward manner.

View FSR’s SIMPLE PTE proposal here: http://bit.ly/1OT6oRd

The Simple Investment Management Principles and Expectations (SIMPLE) proposal requires financial professionals and firms to put their customers’ interests first and allows professionals and firms to receive reasonable compensation for their services. It requires financial professionals and firms to provide customers with clear and concise disclosures in “plain English,” and requires them to adopt reasonably-designed internal controls and compliance procedures tailored to their business and operations. SIMPLE also further empowers regulators to hold financial professionals and firms accountable for any violation of rules.

While the DoL’s proposal is well-intended, it is too long, extremely complicated and impractical. It is expected to limit retirement investment services and guidance, limit retirement investment products commonly available today, require customers to review enormous volumes of disclosures on all potential investments, and require customers to sign a contract with a financial professional before even general conversations regarding retirement goals could take place. FSR believes these impacts could deter retirement savings at a time when more saving for retirement is urgently needed.

FSR’s full comment letter outlining FSR’s analysis of DoL’s proposed rule and its anticipated adverse impacts on Americans’ ability to plan and save for retirement can be read here.

A blog post further explaining FSR’s SIMPLE PTE can be read here and an infographic illustrating FSR’s SIMPLE PTE can be seen here.

For additional information on the value of using financial professionals and the importance of helping more Americans plan and save for retirement, visit www.protectourfinancialfuture.com.

FSR and its members stand ready to work with Secretary Perez, Congress and other policymakers to find the best solution for American retirement savers and small businesses.



FSR Statement for the Record to DoL

 

WEBCAST: DoL Rule Analysis & FSR’s SIMPLE PTE Explained
In a live webcast event, FSR’s EVP of Government Affairs Francis Creighton & Senior Regulatory Counsel Felicia Smith joined Progressive Policy Institute Senior Fellow Hal Singer to explore how the Department of Labor’s proposed fiduciary rule could harm lower and middle class Americans’ ability to adequately save for retirement and access financial education while overwhelming consumers with mountains of confusing disclosure paperwork and red tape.

Behind the scenes photos from the webcast: Webcast: DoL Rule Analysis & FSR's SIMPLE PTE Explained


FSR’s SIMPLE PTE
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Five Concerns with the Department of Labor’s Fiduciary Proposal
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FSR’s SIMPLE PTE Explained  Going Beyond the Sound Bite – Fiduciary is Complicated, so How Do You Keep it Simple?
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Jill Hoffman is FSR’s Vice President of Government Affairs for Investment Management

For years, efforts have been afoot to redefine what it means to be a fiduciary when providing financial advice to clients. The question is straightforward, “Should your financial professional act in your best interest?” The answer is, “Yes. Of course, they should.” Anyone worth their salt in the financial services industry has to do what’s right for their clients, or they won’t be in business for very long. The trouble is, when you start to use words like “fiduciary duty” and then insert federal and state regulators with different rules governing investment and retirement products and the professionals that serve clients saving for retirement, that very straightforward question, as with most things in regulation, gets, well, complicated.

But I don’t understand, what is so complicated about ensuring that the advice is in the investor’s best interest? That’s central to protecting investors, right?

“Of course.” The problem is that financial professionals selling retirement products and services are held to an ERISA fiduciary standard that is different than the fiduciary standard registered investment advisers are held to under securities law. Further, many argue that the registered investment advisers’ duty should be harmonized with the legal suitability duty to which broker-dealers are bound. PTE-infographic

 

Suitability?

Yep, that’s another standard. Some say it’s a lesser standard. I suppose you can argue that requiring broker-dealers who sell your stocks, bonds, and variable insurance products do what’s “best” for you, but what is “best”? Is it the cheapest investment product? The one with the most risk protection? The most aggressive investment for your risk profile?

Risk profile?

Yes, a risk profile. It’s required by FINRA which regulates broker-dealers and falls under the oversight of the Securities and Exchange Commission. It means that a broker-dealer and their representatives (those who actually sell you a security) must take the information you give them (your financial goals, investment experience, risk tolerance, and so forth) and use it to determine your risk tolerance profile. They have to assess your tax status, timeline horizon until retirement, liquidity needs, and other key details needed to get a complete profile of you as the customer. Anything that broker-dealer sells you must be appropriate for your risk profile. That is called suitability. It’s actually pretty rigorous. Just ask anyone who sells securities to talk about all they have to do to be compliant. The sheer amount of paperwork and checks and double checks will make your head spin.

So Then what is a Fiduciary Duty?

Good question. There isn’t one definition. Securities law says that registered investment advisers must adhere to this duty when providing advice and managing your assets, and they have to disclose their material conflicts of interest to you. Under securities law, the investment adviser can continue to work with you even if it has a material conflict of interest, if that conflict has been disclosed to you and you—as the customer—make a determination that you want to continue your relationship with that adviser. ERISA, which is the law governing retirement accounts, is very different. It basically says the same thing, but the way it is structured, those providing advice are bound by ERISA’s “thou shall not” provisions (which is pretty much thou shall not get paid for your services) unless they provide a specific exemption that allows you to get paid. That’s called a Prohibited Transaction Exemption (PTE). Under ERISA, you cannot continue to work with a financial professional even if the disclosed material conflict is not important to you—the financial professional must have a PTE to work with you.

Prohibited Transaction Exemption?

Yep. It’s just ERISA’s funny way to name basic financial guidance and payment structures to ensure your advisor to receive compensation that would otherwise be prohibited under ERISA. The PTEs are intended to ensure that the financial professional’s compensation is “reasonable.”

I’m Confused, so then what is a Fiduciary?

The answer is that being a fiduciary and acting in a client’s best interest isn’t as straight forward as one would like. Different agencies have different jurisdictions over different products and practices, and what it means to be a fiduciary has not been harmonized between agencies and regulators on the federal and state levels The Financial Services Roundtable and many other financial services industry trade associations support efforts to harmonize the standard so that anyone providing investment or retirement advice to individual investors is held to the same standard, but there is little political will to do that.

So What Does That Mean for Investors?

It means that depending on which services you need from financial professionals, they will adhere to a different set of rules. Note that I didn’t say a bad set of rules, just different. The Department of Labor is the most active in trying to change the rules, but its efforts will only apply to advice about retirement accounts, such as your 401(k) and your IRA.

That’s Good, Right?

It’s good if the rules will work. But they won’t. The Department of Labor’s proposal completely overhauls existing rules and PTEs with hundreds of pages of complex requirements and dense legalese. If implemented, some of the new rules will conflict directly with existing insurance and securities law. Compliance will be impossible, meaning customers will lose their preferred advisor.

Why are They Doing This?

The goal is noble; they want to ensure investors are protected and get advice that’s in their best interest.

So Who Opposes That?

No one, really. The issue is the substance of the rule, not the goal of the rule. The financial services industry broadly supports coordinated efforts to create a harmonized best interest standard.

So How Do You Fix the Substance?

In a perfect world, updates to the law would be initiated by the predominant regulator, the SEC, and the DoL would make its changes work with securities and insurance law. But the DoL isn’t happy that the SEC is still evaluating how to update the law according to the parameters outlined in the Dodd-Frank Wall Street Reform Act, so it is moving ahead on its own. As a result, the Financial Services Roundtable has proposed a SIMPLE PTE as a better way to accomplish the DoL’s policy goal.

What’s the SIMPLE PTE?

FSR’s Simple Investment Management Principles and Expectations (SIMPLE) PTE, which is outlined in FSR’s comment letter to the DoL, requires financial professionals and financial institutions to put their customers’ interests first. It requires financial professionals and financial institutions to provide their customers with clear and concise disclosures in “plain English,” and to receive reasonable compensation for their services. It also ensures regulators can hold them accountable if they violate the rule.

That’s Great, but if the Securities Regulators Don’t Make Changes Too, Will this Create More Confusion?

No. The SIMPLE PTE is a way to accomplish both the DoL’s goal to update ERISA to better protect retirement savers, and would easily fit with any broader effort to establish a harmonized fiduciary standard for all investment and retirement savings products.

Where Can I Learn More about how the SIMPLE PTE Will Work for Savers?

FSR’s SIMPLE PTE and the reasons why it will work better for investors and savers can be found at www.protectourfinancialfuture.com.

FSR TO DOL: FSR’s SIMPLE Solution
Along with FSR’s comment letter to the DoL on the proposed fiduciary standard, FSR also filed its “SIMPLE PTE”, FSR’s simpler solution to the DoL’s proposal.

 

FSR LETTER TO DoL: Comments on Revised Definition of Investment Advice and Related Exemptions
FSR filed comments to the Department of Labor on its proposed fiduciary standard.

 

FOR IMMEDIATE RELEASE
July 21, 2015

Contact: Erika Reynoso
202-589-2410 | @fsroundtable
Erika.Reynoso@FSRoundtable.org

Contact: Alison Hawkins
202-589-2427 | @fsroundtable
Alison.Hawkins@FSRoundtable.org

DoL Fiduciary Proposal Will Limit Needed Retirement Planning

FSR supports customer best interest standard but urges a simpler approach

Washington, DC – A new rule proposed by the Department of Labor (DoL) will hinder retirement planning for low and middle income savers by creating red tape and conflicts with other regulations, according to the Financial Services Roundtable (FSR).

The FSR outlined its concerns and suggestions in a comment letter filed today in response to the DoL’s proposal.

“Of course, financial advisors should act in their client’s best interest but it shouldn’t require new uncertainty and miles of added red tape to accomplish such a common sense and obvious goal,” said FSR President & CEO Tim Pawlenty. FSR urged the DoL to instead adopt FSR’s ‘SIMPLE’ proposal which is intended to accomplish a client best-interest standard in a more straight-forward manner.

FSR’s Simple Investment Management Principles and Expectations (“SIMPLE”) proposal requires financial professionals and institutions to put their customers’ interests first and allows advisors to receive only reasonable compensation for their services. It also requires financial professionals and institutions to provide customers with clear and concise disclosures in “plain English”, and it further empowers regulators to hold financial advisors and their companies accountable for any violation of rules.

According to FSR, the DoL’s proposal is well-intended but it is too long, unnecessarily complicated and impractical. FSR is concerned the DoL’s proposed rule could have the unintended effects of: limiting retirement investment services and guidance; limiting the types of retirement investment products commonly available today; requiring customers to review large volumes of complex disclosures regarding all possible investments; and requiring a signed contract with a financial professional before even general discussions regarding retirement goals could take place. FSR believes these impacts could deter retirement savings at time when more saving for retirement is urgently needed.

FSR also expressed concern that the DoL’s proposal could limit employee access to financial education and guidance through workplace savings plans.

The scope of the DoL proposal is limited to advice given to retirement account holders, such as those with 401(k)s and IRAs. FSR’s comment letter reiterates support for broader efforts to achieve a single best interest standard for all investment accounts.

FSR’s full comment letter outlining FSR’s analysis of DoL’s proposed rule and its anticipated adverse impacts on Americans’ ability to plan and save for retirement can be read here.

A blog post further explaining FSR’s SIMPLE PTE can be read here and an infographic illustrating FSR’s SIMPLE PTE can be seen here.

For additional information on the value of using financial professionals and the importance of helping more Americans plan and save for retirement, visit www.protectourfinancialfuture.com.



The Advice Yield – How to Achieve the Best Deal for Savers
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Jill Hoffman is FSR’s Vice President of Government Affairs for Investment Management

Benjamin Franklin famously said, “If you fail to plan, you are planning to fail!”

This philosophy is especially relevant to workers who are increasingly responsible for navigating their way to a financially secure retirement due to a decline in defined pension plans and the tenuous future of Social Security.  This can be a daunting task for many who feel intimidated by the markets and fearful of making uninformed investment decisions that will dramatically shape their ability to retire with ease.

In a recent speech at the White House Conference on Aging, President Obama said too many older Americans are underprepared for retirement when they leave the workplace, and that public policy should encourage people saving for retirement to get a “fair deal”.  While the President’s focus on increasing retirement savings is commendable, his statements too frequently diminish the value of financial advisors and the services they provide.  On multiple occasions the President has stated that the Administration must crack down on “back door payments,” “hidden fees,” and “conflicted advice” by advisors who are more self-interested than doing what’s right for their clients.  These assertions make for good sound bites, but the facts don’t support these claims.

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A 2014 Consumer Survey by the LIMRA Secure Retirement Institute found that households that use a financial advisor are twice as likely as non-advised households to have $100,000 or more in retirement savings, and three times as likely to have a retirement nest egg greater than $250,000.  Similarly, a study recently released by Oliver Wyman emphasizes the value of working with a financial advisor in planning for retirement, finding that “advised individuals making less than $100K per year had 51% more assets than similar non-advised investors.”  The Wyman report concludes that there is “substantial evidence that advised individuals are more sophisticated and diligent long term investors who achieve better investing outcomes.”

Individuals often begin saving for retirement through an employer-sponsored defined contribution plan, and these plans are critical to retirement security as they are often the primary and sometimes even the sole source of a worker’s tax-deferred retirement saving. The LIMRA survey shows that people who engage a financial advisor are more likely to contribute at least 10% to their employer provided plan, which is the commonly recommended saving rate.  This is much higher than the average default contribution rate of 3.4% that unadvised individuals make with automatic enrollment.

Unfortunately, many employees of small businesses do not have access to workplace-sponsored defined contribution plans and must save for retirement on their own.  The Wyman report shows that small businesses may not offer a retirement plan due to cost, prioritization of other employee benefits, and significant use of temporary labor. The good news is that small businesses who do turn to financial advisors are 50% more likely to set up a defined contribution plan for their employees.

Financial professionals help people understand their investment options, manage their risks, and meet their saving goals.  While there have been many improvements in today’s retirement saving options including auto-enrollment and auto-escalation, many workers are still uncertain about how to best proceed and look to a trusted financial advisor for guidance.  According to the Wyman report, “Many people are uncomfortable tackling retirement savings on their own.  By one measure, professional financial advice is solicited by 58% of households with under $100,000 in investable assets and 75% of households with more than $100,000 in investable assets.”  Working with a financial advisor allows individuals to have more stability and success over the long run.  Financial advisors help investors create diverse, balanced portfolios, take advantage of packaged products, hold lower cash allocations, avoid early withdrawal scenarios, manage tax law and tax risk, and rebalance their portfolios regularly.

Unfortunately, consumers may soon find it difficult to obtain the help of a financial professional because the financial planning industry is currently facing its own set of risks.  The substance of a well-meaning proposed rule by the Department of Labor is impractical and will not work for investors. The unfortunate impact will mean workers saving for retirement will face limited services that financial advisors currently provide to investors and small businesses seeking to help their employees save for retirement.  Their remaining services will be more costly, and middle-income investors will no longer be able to afford the help of a financial advisor who can diversify and rebalance their portfolios and reduce their risk exposure.  However well-intentioned the DOL proposal may be, it will not be a fair deal for retirement savers.

Let’s not rush to adopt a risky piece of regulation with a questionable return.  Instead, let’s be careful to acknowledge the value of financial advisors and the services they provide.  With the help of financial advisors who have the freedom and flexibility to help their clients, investors will neither fail to plan nor plan to fail.


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Overnight Finance: Tough start for highway deal; Dodd-Frank at five – The Hill

 

FIDUCIARY FIGHT – – BIZ COMMUNITY PROPOSES NEW PLAN. Former Republican presidential candidate Tim Pawlenty is touting a new plan that he says will better protect consumers that would be at risk from the Department of Labor’s proposed fiduciary requirements for financial advisers.

“Of course, financial advisors should act in their client’s best interest but it shouldn’t require new uncertainty and miles of added red tape to accomplish such a common sense and obvious goal,” said Pawlenty, who is the head of the Financial Services Roundtable (FSR), in a statement. “FSR urged the DoL to instead adopt FSR’s ‘SIMPLE’ proposal which is intended to accomplish a client best-interest standard in a more straight-forward manner.”

— QUICK Q: WHAT IS ‘SIMPLE’ PLAN? Pawlenty’s FSR explains: FSR’s Simple Investment Management Principles and Expectations (“SIMPLE”) proposal requires financial professionals and institutions to put their customers’ interests first and allows advisors to receive only reasonable compensation for their services. It also requires financial professionals and institutions to provide customers with clear and concise disclosures in “plain English”, and it further empowers regulators to hold financial advisors and their companies accountable for any violation of rules.

Read the full version on The Hill.



Fox Business features FSR CEO Pawlenty on Obama’s fiduciary rule
Fox Business host Neil Cavuto and FSR CEO Tim Pawlenty discuss the negative impact that the Obama Administration’s proposed fiduciary rule is expected to have on middle class Americans and their ability to save for retirement.

 


Financial Guidance: Growing America’s Retirement Savings

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FSR featured on NPR: DOL fiduciary rule could harm millions of Americans’ retirement plans
NPR’s “On Point” with Tom Ashbrook features the Financial Services Roundtable’s EVP of Government Affairs Francis Creighton, who debates labor rights activist Teresa Ghilarducci on Americans’ struggle to save for retirement, why the Administration’s DoL fiduciary rule will likely inflict more damage, and how financial professionals play a critical role in helping investors save more, stay confident in their investments and grow their accounts.


WSJ: Obama vs. Savers

The White House moves to take away choices for middle-class investors.

Weeks after abandoning his proposed tax increase on college savings, President Obama is back with a plan to raise the cost of investing. On Monday the White House dusted off its proposal to limit retirement options that was hooted down in 2011 by a bipartisan coalition in Congress.

The White House says that many stock brokers are recommending products that generate fat commissions for themselves, rather than products that best serve their customers. It claims workers are particularly vulnerable to this “conflicted advice” when they roll over their 401(k) workplace savings into Individual Retirement Accounts.

Brokers are already heavily regulated by the Securities and Exchange Commission, which imposes myriad rules to prevent fraud, ensure that fees are disclosed and protect clients from “unsuitable” investments. But the President wants to require investors to use advisers who are even more heavily regulated. Specifically, he wants retirement savers seeking advice to use fiduciaries, who are legally bound to act in the client’s best interest.

Ignoring existing regulation, Mr. Obama is making his usual argument that consumers are helpless against the predations of businesspeople. The solution naturally involves lawyers making lots of money. And in order to avoid industrywide chaos, the Washington bureaucracy will issue a flood of exemptions. At least Mr. Obama hasn’t promised that if you like your broker you can keep your broker.

But the White House is claiming that “conflicted advice” reduces investor returns by 1% per year. This translates into a $17 billion annual hit to IRA investors, according to a report from the President’s Council of Economic Advisers.

Read the full article on WSJ.com here.

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Labor Department Urged to Heed Constructive Ideas to Fix Fiduciary Proposal | Commentary

By Kenneth E. Bentsen, Jr., Dale E. Brown, Frank Keating, Dirk A. Kempthorne and Tim Pawlenty

Is President Barack Obama’s administration serious about considering feedback in response to its proposed regulation to change the way Americans, especially low- and moderate-income Americans, are informed and educated about retirement planning?

If so, why would it tell members of Congress that the draft regulation would not be re-proposed — even before public hearings were held or before all written comments were submitted before the Sept. 24 deadline?

Building a big table for discussion is a good idea. Discussions are the most meaningful if useful suggestions are considered and the dialogue is truly constructive. Before issuing a final regulation, the administration should take a fair, transparent and common-sense approach, make the substantive changes it claims it will, then issue a proposal that the public can review and comment on. Changes are sorely needed to avoid leaving low- and moderate-income Americans without the education and advice they want and need.

When the U.S. Department of Labor first proposed a “fiduciary regulation” in 2010, it received more than 200 comments. The department wanted to get it right, so it withdrew the proposal. So far, more than 2,000 commenters have registered their opinions or analysis of this complex proposal. Most of the substantive comments from regulators, academics, employers and retirement-plan sponsors say the administration still did not get it right.

The department should restart the process by being clear about the proposed regulation’s substantial, adverse impact on savers and account for the extensive laws and processes that already punish people and firms for failing to act in their customer’s interest. Financial professionals will not be in business very long if their customers’ needs aren’t met.

Read full story on Roll Call