On July 21, 2015, SEC Commissioner Daniel Gallagher submitted a strongly worded comment letter to the Department of Labor (“DOL”) reflecting his views on the DOL’s proposed rules on fiduciary duties and conflict of interest requirements for retirement accounts. Although Commissioner Gallagher stated that he believed the DOL rule making was “a fait accompli” and the comment process was “merely perfunctory” he nonetheless outlined numerous reasons why he believes that the DOL’s proposal will harm investors and U.S. capital markets.
Commissioner Gallagher anticipates that under the proposal, broker-dealers utilizing commission-based fee structures will not be able to effectively service certain retirement accounts and therefore, will stop serving such accounts altogether. He especially worries about low and moderate income workers, who may be dropped by their brokers under the proposal. In addition, he noted that many high net worth clients will be moved into fee-based advisory accounts that may not be economically advantageous for them.
In his comment letter, Commissioner Gallagher referred to the DOL’s proposal as a “nanny-state” in which the DOL substitutes its judgment for that of investors in deciding the type of financial professional and fee structure that should apply to investors with respect to their retirement accounts. He further stated that the DOL has ignored the benefits to investors of a disclosure-based approach to dealing with conflicts of interest, which would enable investors to choose the types of products and providers that they want.
Commissioner Gallagher also explained that while the DOL has maintained that the DOL and SEC staffs have worked closely through the rule making process, he has not been included in any of these conversations. He also noted that the DOL proposal does not even mention the potential for future SEC rules or the SEC’s existing regime for regulating broker-dealers and investment advisers. Commissioner Gallagher urged the DOL to scrap its current proposal and instead work in a meaningful way with the SEC to address its concerns with respect to broker fees for retirement accounts.