“The reality is, retirement is the new health care. It’s a top-tier issue.” Starting with that observation by NAPA executive director Brian Graff, a spirited discussion of the proposed fiduciary — or “no advice” — rule highlighted the opening session of the NAPA 401(k) Summit March 22.
The discussion illustrated how that dynamic is a big-picture backdrop for the current debate. Graff was joined by NAPA president Steven Dimitriou of Mayflower Advisors, LLC, and Jania Stout, practice leader and co-founder of Fiduciary Plan Advisors, HighTower.
The trio spelled out in detail why NAPA is concerned about the proposal — and what it portends not only for plan advisors but ultimately for participants and their dependents. “The assumption is that [advisors] are all bad,” Graff said of the Obama administration officials pushing the proposed regulations.
The way in which the proposal is being handled is unprecedented, Graff told attendees, saying that he had “never experienced anything as political involving retirement as this regulation.” He cited as ample proof the fact that President Obama discussed at a press conference the Department of Labor’s delivery of the proposed regulations to the Office of Management and Budget — a routine preliminary administrative procedure that presidents never ordinarily announce — and fact that Secretary of Labor Thomas Perez has had more than 50 meetings with members of Congress about the regulations. Both Stout and Dimitriou agreed that the rule is being driven by politics.
The rule is expected to set in place a presumption that you can never receive variable compensation, and that to receive variable compensation under such circumstances would violate ERISA's prohibited transaction requirements, warned Graff. Not only that, he said, there is a presumption in the rule that charging variable rates is an indication that an advisor is not acting in a client’s best interest. “It’s an anti-variable compensation issue,” he noted.
Graff argued that advisors should not be precluded from directing clients to rollovers of balances from employer plans to IRAs, something that the proposed rules would proscribe. “Our position is that it’s a dumb idea,” said Graff; in fact, that was what he told OMB officials at a March 19 meeting in Washington.
To so severely constrain the services clients can receive from advisors, Graff said, is “like telling someone you can’t ask the waiter for a recommendation because different prices are charged on the menu.”
NAPA’s concern, said Graff, is not the “best interest [of the client]” standard. “The reality is, many of you in this room already are doing that,” he said. Stout agreed, saying, “Of course we should all put our clients’ interest first.” But she said that if the rules go into effect as proposed now, they will have a “dramatic effect on our business model.”
Both Stout and Dimitriou said, in response to a question from Graff, that they do not think that the administration values what advisors do. Nor do they understand it. Dimitriou said that the proponents of the regulations “do not understand the conflict of interest rule.” He added that in their comments on the matter, Sen. Elizabeth Warren (D-Mass.) and Perez “interchange active management with brokerage fees,” and “constantly use this term, ‘conflicted advice.'"
Perhaps Stout best captured the tenor of the discussion, as well as the proposed rules’ import, when she warned that, “What’s billed as helping Main Street will end up hurting Main Street.”
