The Congressional Hispanic Caucus weighed in on the Department of Labor's re-proposal of its fiduciary rules this week.
In a letter to Labor Secretary Tom Perez, the Congressional Hispanic Caucus said that it is "critically important that the re-proposed fiduciary rule protect individuals from misleading or harmful advice. It is equally important that the re-proposal promote robust access to information and personal assistance regarding retirement investments for both 401(k) plans and IRAs that are in the account holder's best interest."
The DOL is scheduled to release the latest version of its proposed rules regarding who is a fiduciary when it comes to giving investment advice in August.
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The Caucus said that the fiduciary definition is important for the Hispanic community in particular because recent studies have shown that low and middle-income Hispanics and other minority groups have retirement plan savings that are almost 40 percent lower than other low and middle-income individuals. "In fact, only 38 percent of Latino employees age 25-64 have access to an employer-sponsored retirement plan."
Kent Mason, a partner with Mason, Davis and Harman who represents a group of banks, insurance companies, mutual funds and brokerage firms, said he was glad the Hispanic Caucus weighed in on the topic.
"By making brokerage compensation illegal, many individuals would lose access to investment professionals because the vast majority of small accounts are serviced by a broker and not by someone who is an RIA. The brokerage model would be illegal. Small accounts wouldn't have access to an investment professional," Mason said, in an interview with BenefitsPro.
Financial institutions are upset that the Department of Labor is still considering holding broker/dealers to the same high advice standards as registered investment advisors.
When the DOL releases its fiduciary rules in August, it is expected to hold anyone advising people on what to invest in their IRAs and personal accounts to the same standards as advisors who work with employer-sponsored defined contribution plans.
Mason said there has been a lot of confusion in the industry about where his clients stand on the proposed rules.
When an advisor becomes a fiduciary, it has two effects under the Department of Labor's law, Mason said. The advisor has to act in the best interest of the customer and if an advisor is a fiduciary and the advisor's compensation in any way is affected by what the investor decides to invest in, the advice is prohibited, even if the advice is in the best interest of the investor.
Mason said that his clients already act in the best interest of their customers.
"That issue is not controversial with our groups. They support the SEC moving forward and they would explicitly require they act in support of it," he said. "We are ready to stand behind our advice."
The second piece of the fiduciary rule, Mason believes, would "cause all the low- and middle-income people to lose access to investment consensus. That has been our concern all along."
He added that, "what they are saying is that some forms of compensation variations will be OK and some will not. So that's a problem. If a material part of an advisor's compensation becomes illegal that will be a big problem and prevent them from giving advice."
Congress reviewed the brokerage model and how brokers get compensated when the Dodd-Frank Act was passed in 2010. "They directed the SEC to keep that model available to customers. To preserve that model…Now the DOL is saying, 'that direction didn't apply to us. We're going to make it illegal over here for IRAs and plans,' which is not really what they should be doing," Mason said.
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