ICI Recommends That DOL Revisit the Best Interest Standard in Its Proposed Fiduciary Rule
Commentary by Steven Lofchie
In comments submitted to the Department of Labor (“DOL”), the Investment Company Institute ("ICI") argued that the DOL added "a multitude of additional conditions and exclusions" that make the proposed best interest contract exemption ("BIC Exemption") "simply unworkable."In commentary submitted to the DOL, ICI stated that the DOL "must simplify" the BIC Exemption at a minimum by: (i) modifying the proposed exemption's disclosure regime, (ii) eliminating the exemption's required contractual warranties, and (iii) clarifying the required written policies and procedures for avoiding "material conflicts of interest."
ICI also stated that DOL "must modify the scope of the BID Exemption" by: (i) eliminating the proposed list of favored investment choices, (ii) expanding the BIC Exemption to cover advice provided to all small employers, (iii) covering the full range of eligible retirement plan distribution discussions, and (iv) providing tailored relief for managed accounts and other advisory programs that are beneficial to retirement investors. Finally, ICI stated that the DOL must modify the proposed exemption for pre-existing transactions.
Commentary
While criticism of the DOL's proposal by the sell-side (e.g., SIFMA) might have been discounted on the basis that the market sell-side was perhaps economically motivated to be opposed, it is harder to so discount such strong criticism from the ICI, many of whose members are in a position to benefit from a rule that is likely to discourage investors' use of brokers and to limit their range of investments. Likewise, the DOL's proposal has also been subject to significant criticism by other regulators, including SEC Commissioner Daniel Gallagher as well as by FINRA.