United States: DOL Open To Changing Fiduciary Proposal, But Some Press For It To Be Scrapped

As we wrote about here, in April the Department of Labor issued its highly anticipated, re-proposed regulation addressing the standard of care for broker-dealers and other financial professionals who provide retirement investment advice. Since its release, the proposed rule has come under fire from critics who maintain that the DOL proposal, while well intentioned, will ultimately limit access to affordable retirement services and result in investor confusion. Last week, the chorus of opposition grew louder as the proposed rule's 90-day notice-and-comment period came to an end.

Sensing the growing opposition, earlier this month Timothy Hauser, the Deputy Assistant Secretary for Program Operations in the DOL's Employee Benefits Security Administration ("EBSA"), signaled that the DOL is open to reworking its controversial fiduciary proposal. Speaking at a meeting of the Securities and Exchange Commission's Investor Advisory Committee, Mr. Hauser said that, while the DOL is committed to addressing the issue of conflicted investment advice, the agency is not "wedded to any particular choice of words or regulatory text."

We've identified what we believe are demonstrable injuries that flow from the current compensation structure – the current way advice is delivered to retirement investors," Mr. Hauser told the committee. "We're committed to doing something to fix that problem." Still, Mr. Hauser promised that the agency would approach the rulemaking process with an open mind. "The point is to improve this marketplace, not to defend the details of our package," he explained. "There will be changes – no doubt about it."

Secretary of Labor, Thomas Perez, echoed this sentiment last week in testimony before the Senate Subcommittee on Employment and Workplace Safety, assuring that, "as long as we don't lose sight of the North Star – an enforceable best-interests commitment – we are very flexible on the question of how to get this work done."

But some influential stakeholders, including SEC Commissioner Daniel M. Gallagher, do not favor minor surgery, but rather have encouraged the DOL to withdraw its proposal. Commissioner Gallagher, in a comment letter submitted on his own behalf, urged the DOL to "scrap" its proposal and start over. He warned that the current proposal will give firms a perverse incentive to stop offering certain retirement services: "Broker-dealers utilizing a commission-based fee structure will find it difficult, if not impossible, to navigate the labyrinth of prohibitions and exemptions contemplated by the proposal, and many will make the unfortunate – yet entirely rational – choice to stop servicing certain retirement accounts." Commissioner Gallagher explained that, as a result, firms will move their high-net-worth clients into (more expensive) fee-based accounts and "fire" their less wealthy counterparts.

Commissioner Gallagher also tempered expectations regarding the prospect of a uniform best interest standard implemented by the SEC – an idea that seemingly has broad industry support. Commissioner Gallagher referred to the DOL rulemaking as a "fait accompli" and wrote, "[T]hose who believe that the SEC can stave off the heavy hand of DOL are chasing fool's gold." Instead of a uniform, industry-wide standard, Commissioner Gallagher predicted that if the SEC moves forward, "the industry will most likely end up with two incredibly burdensome and redundant rules."

In addition to Commissioner Gallagher, members of the U.S. House of Representatives have also encouraged the DOL to throw out the current proposal. As reported by The Hill last week, a bipartisan group of Congressmen led by Representatives Ann Wagner, Andy Barr, David Scott and Lacy Clay circulated a letter to their colleagues encouraging the DOL to withdraw the current proposal and start the rulemaking process over again. The letter cited stakeholder concerns and noted the "strong possibility that a final rule may widely differ in its substance from the initial proposal or contain provisions that were not part of the proposed regulation."

That said, not every influential commenter has explicitly asked the DOL to withdraw its proposal. On July 17, 2015, the Financial Industry Regulatory Authority ("FINRA"), whose Chairman and CEO, Richard Ketchum, has been highly critical of the proposal, submitted a 21-page comment letter to the DOL. The letter reiterated many of concerns raised by Mr. Ketchum over the last three months. Although FINRA praised the DOL for "raising public awareness about the need to ensure that retirement investors can obtain financial advice without being subject to abusive or predatory sales practices," it noted that the DOL proposal, as currently drafted, falls short in a number of ways.

Among other things, FINRA highlighted the fact that, under the DOL proposal, a different standard would apply to broker-dealers when they provide retirement-related investment advice than when they provide investment advice that is not retirement- related. FINRA expressed concern that this "fractured approach" would confuse both investors and brokerage industry professionals. Adding to the uncertainty, FINRA emphasized, the DOL failed to incorporate elements of the current regulatory regime. Because the DOL introduced a number of new concepts – many of which are not well defined – FINRA anticipated the need for interpretive guidance on various issues.

To the extent the DOL plans to proceed with a final rule, FINRA urged it to make, at a minimum, the following changes to the current proposal: (1) clarify the scope and meaning of the best interest standard; (2) simplify treatment of differential compensation; (3) anchor the proposal around the existing (and already robust) securities regulatory framework; (4) eliminate conditions that do not meaningfully address conflicts of interest; and (5) clarify the impact of non-compliance. Like Commissioner Gallagher, FINRA maintained that if the current proposal is adopted, many broker-dealers will abandon small accounts and begin charging bigger accounts a heftier asset-based fee.

The final chapter has yet to be written and it's expected that the future of the proposed rule will come into better focus after EBSA holds its public hearings next month.

DOL Open To Changing Fiduciary Proposal, But Some Press For It To Be Scrapped

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions