Conflicts of Interest Aired at the ‘Conflicts of Interest’ Hearing

By Andrew Remo • August 11, 2015 • 0 Comments
The first day of the Department of Labor’s (DOL) public hearing on its re-proposed fiduciary rule Aug. 10 veered from the informative to the absurd as the department’s rule makers heard from a broad array of stakeholders on the complex subject.

Labor Secretary Thomas Perez has repeatedly promised to build a big table to inform the department’s fiduciary rulemaking. But the format of the public hearing amounted to two small opposing tables from which witnesses fed continuous sound bites of disparate information to the DOL staffers who will be tasked with finalizing the proposed rule in the coming months — a process that will be repeated over the course of the next three days.

The DOL constructed the 25 panels to couple witnesses who are generally critical of the proposal with witnesses who largely support it. The result, at least as it played out on the first of four days of testimony, was a jarring display of arguments from both sides of the debate that gives the impression that the DOL proposal strikes a middle ground.

The hearing began with opening remarks from Phyllis Borzi, Assistant Secretary of the DOL’s Employee Benefits Security Administration. Borzi made a strong case for the regulatory project, and then left the stage (though not the room), handing over the reins of the proceedings to Timothy Hauser, Deputy Assistant Secretary for Program Operations. Hauser is expected to run the hearings throughout the process.

While Hauser defended the substance of the re-proposed rule in the face of serious concerns raised by witnesses on both sides of the debate, he also expressed a willingness to make changes to it to address some of those concerns. He frequently asked witnesses whether their concerns would be assuaged if certain specific changes were made in the proposal.

Five major discussion topics emerged throughout the course of the day:

  • the basic elements of the Best Interest Contract Exemption (BICE), including the contractual requirement and the mandatory arbitration clause embedded in the BICE;
  • the rule’s treatment of insurance products, with an emphasis on variable annuities;
  • the line between investment education and advice;
  • the impact of the proposal on small plans; and
  • the scope of the seller’s carve-out in the rule.
While those in attendance were cautioned at the outset not to read too much into any particular line of questioning, the two areas where the department seemed to express a consistent willingness to address concerns about the rule were in the timing and execution of the contractual requirement in the BICE and expanding the current scope of investment education to allow the names of specific funds to be included in asset allocation models provided to plan participants, given certain conditions.

Today’s hearing will feature a discussion of the rule’s regulatory impact in the morning, followed by more stakeholder testimony in the afternoon. American Retirement Association President Elect Marcy Supovitz is scheduled to testify on behalf of the American Retirement Association on Aug. 12. Her testimony will highlight the American Retirement Association’s proposal to create a streamlined “level compensation to level compensation” contract exemption to encourage plan advisers to help plan participants with rollovers.

The public hearings are being streamed live starting at 9:00 a.m. Eastern Time each day.

Andrew Remo is the American Retirement Association’s Congressional Affairs Manager.