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DOL May Offer Changes to Fiduciary Proposal, Requests SEC to Defer Document Production

At a meeting of the SEC’s Investor Advisory Committee, Department of Labor Deputy Assistant Secretary for Program Operations of the Employee Benefits Security Administration Timothy Hauser indicated that the department was willing to change the fiduciary rule proposal in response to public feedback. According to Investment News, Hauser said that “[t]he point is to improve this marketplace, not to defend the details of our package. There will be changes – no doubt about it.”

Regarding the Best Interests Contract Exemption, the DOL is most interested in “upfront, enforceable commitment of fiduciary status” but is willing to be flexible about the contract language required and timing aspects. The exemption would continue to allow “[c]ertain types of fees and compensation common in the retail market, such as brokerage or insurance commissions, 12b-1 fees and revenue sharing payments” that would otherwise be prohibited. However, to take advantage of the exemption, a firm would need to “contractually acknowledge fiduciary status, commit to adhere to basic standards of impartial conduct, adopt policies and procedures reasonably designed to minimize the harmful impact of conflicts of interest, and disclose basic information on their conflicts of interest and on the cost of their advice.” SIFMA CEO Kenneth Bentsen has called the exemption “unworkable as drafted.”

As the Department of Justice continues to move forward with its proposal, Senator Ron Johnson is criticizing the SEC for failing to release records on the Commission’s plan to develop its own rules to address conflicts of interest and its communications with the DOL in that process. Johnson originally requested the documents on April 21. On May 5, the Commission responded that “in light of the issues raised by DOL in connection with its own rulemaking, we would respectfully request to await the outcome of the ongoing discussions between DOL and the [Committee on Homeland Security and Governmental Affairs], which we hope will adequately meet the Committee’s needs.” However, shortly after the SEC’s initial response, it indicated that it would produce the documents on a rolling basis.

On July 8, Johnson received a letter from the DOL indicating that it had “asked the SEC to defer to the [DOL’s] ongoing dialogue with the Committee about the provision of the Department’s deliberative materials, and while that dialogue is continuing to defer producing such materials.” Johnson suggested that staff from the DOL, the Department of Justice, and the SEC met subsequently to discuss Johnson’s request. Johnson rejected the idea that the DOL and his committee have an “ongoing dialogue” and further suggested that the SEC’s decision to defer to the DOL raises questions regarding the SEC’s independence and “impedes the Committee’s oversight obligations.”

According to Reuters, the DOL declined to comment but noted that it has provided 800 pages of documents related to communications with the SEC. The SEC said that the agency is still in the process of responding to Johnson’s letter.