US pursuing FOFA-style reforms

US pursuing FOFA-style reforms

The US Department of Labor is eyeing August as a target to release a proposal that would require retirement plan financial advisers to put their clients' interests ahead of their own.

The Employee Benefits Security Administration's assistant secretary, Phyllis Borzi, said in remarks at an event held by the Financial Services Roundtable that while the proposal is yet to be finalised, August is the goal, according to a Reuters report.

Reuters reported on Wednesday that the Department of Labor has been working for several years to overhaul regulations that govern how advisers provide advice to clients in workplace retirement plans such as 401(k)s and individual retirement accounts.

Like Australia’s Future of Financial Advice (FOFA) legislation, the plan aims to reduce potential conflicts of interest.

The plan generated massive opposition from the industry, which claimed it would drive up costs, curb commissions and ultimately hurt customers, according to Reuters.

Critics also complained the Department's rule could conflict with a separate fiduciary rule-making effort under consideration at the Securities and Exchange Commission (SEC) that would harmonise rules between broker-dealers and investment advisers.

The Department of Labor subsequently scrapped its initial draft but vowed to come up with a new one, according to Reuters.

Since then, it has held roundtable discussions and sought more comments from the public. Its release has been long-delayed.

On Wednesday, Ms Borzi stressed the August date is merely a goal and that the proposal may not be completely ready by then.

"It is much more important to get it right than it is to meet some arbitrary deadline," she said.

At the same event on Wednesday, SEC Republican Commissioner Daniel Gallagher said it is still very unclear whether the SEC will ultimately move on its own fiduciary rule.

The SEC has been collecting data to better understand whether customers are confused by the different legal standards that apply to brokers and advisers.

Under current US law, brokers are only required to offer products "suitable" to clients, while advisers are held to a higher fiduciary standard.

The SEC has not, so far, opted to propose regulatory changes.

US pursuing FOFA-style reforms
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