Fact Check: Setting the Record Straight on Industry Misinformation

A variety of broker-dealer, insurance, and other financial services groups opposed to the DOL fiduciary rule have pulled out all the stops in their efforts to ensure that the revised proposal never sees the light of day. Toward that end, these firms and their front groups have issued a number of “studies,” opinion pieces, and surveys purporting to show that the DOL proposal is widely opposed and would have devastating consequences for retirement savers.

In order to justify their dire predictions, however, these articles and studies seriously mischaracterize the DOL’s expected regulatory approach. This document is designed to reveal the false assumptions behind the industry propaganda that render their conclusions meaningless.


The Common Thread

The various studies described below rest primarily on three recurrent falsehoods.

1)The DOL rule will outlaw commissions and other transaction-based forms of compensation, thus preventing brokers who rely on those revenues from dispensing their advice under a fiduciary standard. In fact, DOL has explained repeatedly that it will not prohibit all such forms of compensation.

2)If brokers choose not to continue providing recommendations under the new rule, workers and retirees with modest accounts will be stranded without affordable investment advice to guide their retirement planning. In fact, investment advisers already exist who can and do serve middle income clients under a fiduciary standard, giving the lie to the basic premise of this argument. Furthermore, recommendations that are not based on the best interest of the investor do not constitute advice; such recommendations constitute a sales pitch misleadingly presented as advice. Eliminating such misleading practices will be an important benefit of the rule, not a drawback.

3)Congress intended the SEC rather than the DOL to establish any fiduciary standard governing investment advice, including advice regarding retirement assets, and that the DOL should therefore refrain from any rulemaking and defer to the SEC. In fact, just the opposite is true: In ERISA, Congress clearly tasked the DOL with administering a unique fiduciary standard governing those who advise retirement plans and plan participants regarding plan assets. This mandate is entirely separate from any provisions in the securities laws administered by the SEC.


Table of Contents:


Access to Call Centers and Broker Dealers and their Effects on Retirement Savings

Conducted by: Quantria Strategies, LLC

Commissioned by: Davis & Harmon

Date: April 9, 2014

Scary Predictions

False Assumptions

Fact Check

As explained by Kent Mason, the financial lobbyist behind the study, the underlying assumption here is that the DOL rule will prevent financial professionals from providing any advice “that could affect how much compensation he or his employer receives.” However:

In making its predictions, the study also fails to clearly distinguish between educational services, which are not considered investment advice, and investment advice itself, which will be covered by the DOL rule.

The Bottom Line

The industry is well aware that DOL will adopt PTEs to permit compensation for advice and that they will have ample opportunity to review and comment on draft PTEs before a rule is finalized. To issue a report based on the opposite assumption is patently deceptive. Moreover, the underlying assumption that renders the findings meaningless is buried deep within the report, where only the most attentive of readers will find it. It should come as no surprise that the financial services firms and trade groups that funded the study have chosen to remain anonymous.


The Impact of the Upcoming Re-Proposed Department of Labor Fiduciary Regulation on Small Business Retirement Plan Coverage and Benefits

Conducted by: Greenwald and Associates

Commissioned by: Davis & Harmon on behalf of its financial services clients and co-sponsored by the Hispanic Chamber of Commerce

Date: May 14, 2014

Scary Predictions

A DOL rule to expand fiduciary status “will only impede the ability of small firms to offer their employees retirement-plan accounts, thus hindering American workers from saving for a reliable future.”

According to the survey:

False Assumptions

The survey was introduced with the following description of the DOL rulemaking:

The Department of Labor is considering prohibiting both retirement plan providers and the advisors who sell retirement plans to employers from assisting the employers in the selection and monitoring of the funds in the retirement plan. Under possible new rules, the employer would have two options: (a) find an independent expert on investments to provide, for an additional fee, guidance on the selection and monitoring of investment options, or (b) do the selection and monitoring themselves, subject to fiduciary liability if this selection is not done in a prudent manner by someone with sufficient expertise. If “a” is chosen, the plan sponsor would be subject to fiduciary liability if the expert is not chosen in a prudent manner.

Fact Check

This is a different presentation of the assumption that DOL will not issue prohibited transaction exemptions (PTEs) to permit financial services firms to provide advisory services to plans and plan participants where they have a financial stake in that advice. Financial firm lobbyist and survey sponsor, Kent Mason, said as much in an article in Think Advisor:

Under the DOL’s ‘prohibited transaction rules,’ a fiduciary generally is prohibited from assisting a plan or participant if such fiduciary’s compensation could be affected in any way by the decision made by the plan or participant, even if the fiduciary’s assistance is in the best interest of the plan and the plan participants.

As Mason and his financial services firm clients know, however, the DOL is drafting PTEs to permit transaction-based compensation and has promised to put those draft PTEs out for public comment before the rule is finalized.

The Bottom Line

Given the survey’s gross mischaracterization of the expected DOL rule, it is frankly surprising that more of the small companies surveyed didn’t respond that they were likely to either drop their plan or reduce employee benefits. In fact, even with the survey’s fear-mongering, fewer than three in ten said they were even somewhat likely to drop their plan if the rule was adopted, and fewer than half said they were even somewhat likely to make extensive changes to their plan. And if small businesses were provided with an accurate portrayal of the rule, they would undoubtedly welcome the prospect of getting fiduciary advice solely in their best interest.


Financial Advisors Weigh in on Midterm Elections, Industry Issues

Conducted by: FSI

Date: July 9, 2014

Scary Predictions

The vast majority of financial advisers (90%) oppose DOL fiduciary rulemaking.

False Assumptions

The survey question states that the DOL rule would “effectively [ban] the earning of commissions on IRA advice.”

Fact Check

DOL has repeatedly stated that it will issue prohibited transaction exemptions to permit fiduciaries to earn commissions and other transaction-based forms of compensation, consistent with the best interests of the customer.

The Bottom Line

In addition to mischaracterizing the effect of the DOL rule, the press release states that “opposition to the Department of Labor’s pending rule to redefine the term ‘fiduciary’ continues to hold strong at 90%,” implying that there is a rule proposal out there that survey respondents are commenting upon. On the other hand, the survey question is included prominently in the release, so that any minimally attentive and reasonably knowledgeable reader can quickly see that its basic premise is false.


Labor Department Proposal Could Limit Choice for Retirement Investors

Conducted by: SIFMA President and CEO Kenneth E. Bentsen Jr.

Appeared in: The Hill (op-ed)
Date: April 30, 2014

Scary Predictions

The Department of Labor rule could:

False Assumptions

Fact Check

The primary basis for the article’s conclusion that investor choice would be limited, that investors would lose access to guidance, and that cost of saving for retirement would rise is the assumption that a DOL rule will not permit financial services firms to earn commissions and other forms of transaction-based compensation.

In addition, the article suggests that rulemaking is unnecessary, since investors are fully capable of choosing which business model they prefer. Survey research suggests, however, that most investors are unable to make an informed choice among available options for receiving investment advice.

There is also no basis for the article’s claim that Congress, in authorizing the SEC to adopt a uniform fiduciary standard for brokers and investment advisers under the securities laws, intended to limit in any way DOL’s authority to exercise its own rulemaking authority under ERISA. DOL is nowhere mentioned in either the statute or the legislative history. Moreover:

As such, there is no basis for Bentsen’s call for DOL to cede its authority to the SEC. Still, despite their independent and unique authorities, both agencies have confirmed that they are coordinating and in close and frequent consultation regarding their respective roles. They have also provided assurances that their regulations will not conflict.

A more complete rebuttal of the Bentsen op ed is available.

The Bottom Line

This op ed paints an unrealistically benign picture of the current retirement landscape, in which retirement savers are able to freely choose who to rely on for advice based on a clear understanding of the differences between those advisers and which approach best serves their interests. Survey after survey has shown that average investors simply do not understand these distinctions and expect anyone who is offering advice to act in their best interests. Its depiction of congressional intent with regard to Dodd-Frank is a pure fiction. And it offers as undisputed facts industry talking points on compensation restrictions that have been directly refuted by DOL officials drafting the rules.

If industry had factual arguments to use against the DOL rulemaking, presumably they would use them. The fact that they continue to resort to these sorts of misrepresentations suggests otherwise.