Phyllis Borzi, head of the Department of Labor's Employee Benefits Security Administration (EBSA), fought back on Tuesday against criticisms EBSA has received regarding its controversial regulation amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA).
At the Insured Retirement Institute's (IRI) regulatory conference in Washington, Borzi (left) provided clarity on three areas that she said have drawn significant criticism under the proposed regulation: IRAs, broker commissions and EBSA's collaboration with other agencies, like the Securities and Exchange Commission (SEC).
Brad Campbell, former head of EBSA, who's now counsel with the law firm Schiff Hardin in Washington, is just one industry official that is critical of applying the fiduciary rule to IRAs. In a recent interview with AdvisorOne, Campbell said that "No where in the [proposed rule's] economic analysis does it mention the impact the [fiduciary] rule would have on the IRA marketplace—[which holds] over $4 trillion of capital."
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Campbell went on say that given the fundamental difference between IRAs and 401(k)s, there is a valid question in: "Is DOL the right entity to regulate that [IRA] activity, or should this policy really be coming out of Treasury or the SEC?"
But Borzi said Tuesday that ERISA created IRAs. Borzi went on to say that there has been a "seismic shift" of boomers' money from 401(k)s to IRAs, and that "the level of protection in the IRA marketplace for people against financial conflicts of interest is of concern." This lack of protection, she said, "is one of the main reasons" EBSA has included IRAs in its fiduciary rule proposal.
Borzi said she is "mystified" by critics who say if the proposed rule were finalized in its current form brokers would be forced out of the IRA marketplace "because they couldn't get commissions." Since the mid-1980s, she said, the EBSA has had class exemptions for brokers receiving commissions on such "run of the mill" products as securities, annuities and bank products—but not for hedge funds or private equity. "We are carefully examining the exemptions and if we need to tweak them, we're going to do it," Borzi said.
Despite disparaging comments that EBSA is working "in a vacuum" and has been "paying no attention" to what's been going on at the SEC, "let me assure you that we have been working" to ensure harmonization of both agencies' rules. However, the SEC follows securities laws and will be assessing putting brokers under the same fiduciary mandate as advisors, while the EBSA has a statutory structure under ERISA that defines fiduciary, so "it's highly unlikely that our rules would be identical, and Dodd-Frank doesn't say they have to be," she explained.
But Borzi said she could "promise" this: "that the rules will be harmonized so that compliance with one of the other laws [besides EBSA's] will not cause a problem for you under ERISA."
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
