SIFMA today released a white paperdeveloped by Morgan Lewis, titled "Department of Labor Retirement Initiative Fails to Consider Current Regulatory Regime, Which Comprehensively Protects Investors, Including IRA Investors, and Preserves Investor Choice."
The white paper addresses errant claims made in the Council of Economic Advisers' (CEA) report, "The Effects of Conflicted Advice on Retirement Savings" (CEA Report), regarding perceived inadequacies in the existing regulation of broker-dealers and investment advisers who provide assistance to IRA investors.
The white paper notes that the CEA Report fails to address key aspects of the comprehensive and multilayered regulatory framework that has developed in the United States over the past 100-plus years and that protects all investors, including IRA investors, from conflicts of interest.
Further, the white paper underscores that no thoughtful analysis can begin to frame the issues surrounding how Americans save and invest for retirement-or provide a sound foundation for policy judgments-without taking stock of the investor protections and key aspects of the robust regulatory framework currently in place.
"SIFMA commissioned Morgan Lewis to prepare this comprehensive white paper on the existing and robust regulatory structure governing the role of broker-dealers and registered investment advisers when providing assistance with retirement savings, including IRAs, because the White House Council of Economic Advisers' report fails to address this critical information in its analysis," said Kenneth E. Bentsen, Jr., SIFMA president and CEO.
Bentsen added, "It is vital that policymakers, including the Office of Management and Budget and Department of Labor, carefully consider all of the facts, including the fact that the brokerage industry is highly regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, before moving forward with any new rule. Given the robust and comprehensive nature of existing regulation, the DOL should only act in concert with other industry regulators if and only if additional regulation is warranted after close examination of the current regime.
"This white paper demonstrates that action by the DOL alone is unnecessary. As such, the DOL proposal needs a thorough review as it has the potential to cause a detrimental impact on all American savers, especially middle class investors, and the retirement system as a whole."
Key points made in the white paper include:
- Current Framework Governing Financial Professionals Protects Investors:
- Comprehensive Regime - Aside from the Department of Labor, existing U.S. regulation of financial professionals who provide investment assistance to individual investors, including those saving for retirement through IRAs, is comprehensive and coordinated, and reflects a thoughtful approach to regulation that is based on over a century of learning and experience.
- Preserves Choice - Existing regulations balance investor choice and investor protections in a manner that protects the investor's ability to choose the financial professional that he or she wants to work with, and the level (and costs) of the services provided.
- Scales Protection - Investor protections increase as the financial professional's role and authority increase, and as the investor's reliance increases.
- Addresses Conflicts - Current regulatory framework already provides investors, including IRA investors, with comprehensive and consistent core protections from conflicts of interest, no matter the type of financial professional the investor chooses, and no matter how the financial professional is compensated.
- Thoroughly Regulates Broker-Dealers - Broker-dealers, and their registered representatives, are currently subject to extensive regulation and are held to high professional standards through regulatory oversight and enforcement, and investors' private rights of action.
- Focuses on IRAs - Recognizing the increasing importance of IRAs as sources of retirement income, the financial regulators, those with deep history and understandings of both the U.S. capital markets and investor protections, are continuously adapting their approaches under the existing regulatory framework to address changes in the retirement savings landscape, and to further protect IRA investors.
- CEA Report Fails to Appreciate Key Aspects of Current Regulation of Financial Professionals:
- Fails to Appreciate Comprehensive Protections in Place - No matter the type of financial professional providing guidance - be it a broker-dealer, investment adviser, or bank fiduciary - comprehensive and consistent protections are in place to protect investors, including against conflicts of interest and other concerns.
- Over-Simplifies Broker-Dealer Regulation - The CEA Report fails to appreciate the comprehensive regulation of broker-dealers established in reticulated form via SEC and FINRA requirements, which both protects investors and is calibrated to reflect that broker-dealers and investment advisers play different roles.
- Does Not Acknowledge Capabilities of Established Financial Services Regulators - Established financial services regulators are better positioned to establish and enforce investor protections given their vast experience, technical expertise, and understanding of the financial services industry.
The white paper is available here.
See also: SIFMA's DOL Fiduciary Resource Center.
