Chamber White Paper Pushes Back on Fiduciary Proposal

By Nevin Adams • February 23, 2015 • 0 Comments
Exceptions should not be the rule, at least not when it comes to the Department of Labor’s (DOL) fiduciary regulation reproposal, according to a new white paper from the U.S. Chamber of Commerce.

As part of a Feb. 20 event focusing on the “potential harmful impact of fiduciary regulation on investors,” the chamber released a white paper on the potential negative, unintended consequences of broadening the current definition of fiduciary.

The white paper, “Using PTEs to Define a Fiduciary Under ERISA: Threading the Needle with Rope,” challenges the notion of using prohibited transaction exceptions (PTEs) to “carve back the rule so that it is appropriate in scope.”

By definition, a regulatory regime that prohibits every transaction unless it is specifically allowed through a PTE may unnecessarily eliminate choices and make it difficult to find new ways to better serve investors, the report warns. “Despite best efforts by the DOL, we remain concerned that no matter how well-crafted the PTEs are, they will prove to be insufficiently narrow and inflexible to accommodate the many beneficial ways that financial professionals serve the needs of investors today and in the future,” the report notes.

The white paper explains that the prohibited transaction regime has proven to be:

1. lengthy and protracted;
2. burdened with conditions, limitations and requirements; and
3. generally ineffective in addressing the needs of the employee benefits community.

It claims that, “by utilizing a series of PTEs to narrow an overly broad regulation, the DOL is looking backwards rather than forward and unintentionally creating barriers to finding better ways to improve the system and protect investors.”

The white paper notes that the single most telling fact about the way in which the prohibited transaction program is administered is to consider how infrequently the DOL grants exemptive relief, explaining that in ERISA’s 40-year history, only 55 class PTEs have been created.

Acknowledging that the release of PTEs coincident with the regulation might address concerns about timing, the chamber cautioned that, “the likelihood that those exemptions will effectively address the concerns raised by an overly broad rule are remote.” Moreover, it said that even if they did address today’s concerns, they would be hard-pressed to keep up with developments in a market that is continually evolving.