DOL Delays Fiduciary Rule, Prolonging Retirement Investor Losses

The Department of Labor announced last week that was delaying by 60 days implementation of the Department’s conflict of interest or “fiduciary” rule, which requires all financial professionals to act in customers’ best interests when providing retirement investment advice. Speaking at a Hill event to launch the Retirement Ripoff Counter, which tracks the second-by-second cost of conflicted retirement investment advice, CFA Financial Services Counsel Micah Hauptman said, “The costs of conflicted retirement investment advice are immense, and that is what this Counter vividly shows. Yet even these estimates are extremely conservative.”

The delay was designed to provide time for the Department to reconsider the rule in accordance with a Presidential Memorandum issued in February. After the reconsideration is completed, the Department will determine whether to revise or rescind the rule.

The first phase of implementation, including the revised definition of investment advice and impartial conduct standards, had been scheduled to begin this week. That includes the key requirements to act in the best interest of customers, charge only reasonable fees, and avoid misleading statements. The more detailed operational requirements of the rule, including the requirement to have a legally binding contract in place pledging to act as a fiduciary before providing conflicted advice, are not scheduled to take effect until January.

Even as it finalized the delay, the Department acknowledged that the reconsideration itself would take longer than 60 days, possibly until the end of the year. Rather than approve the much longer delay sought be industry rule opponents to provide time to complete the reconsideration, the Department indicated that it would allow the revised definition and key principles of the impartial conduct standards to take effect in early June.

The Department explained its decision this way: “It has been close to a year since the Department finalized the Fiduciary Rule and [prohibited transaction exemptions], and now with the additional extension of the applicability date contained in this final rule, there is little basis for concluding that advisers need still more time before they will be ready to give advice that is in the best interest of retirement investors and free from material misrepresentations in exchange for reasonable compensation.”

While CFA had opposed any further delay of the rule, the clear message that the Department does not intend to provide additional delays, if it holds in the face of strong industry backlash, represents a victory of sorts. “Industry lobbyists have said for years that they support a best interest standard. Their outrage at the DOL announcement shows the emptiness of those claims,” said CFA Director of Investor Protection Barbara Roper. “As this process moves forward, we will continue to fight their efforts to water down the rule and render it unenforceable so that retirement savers can finally get the best interest advice they expect and deserve.”

The comment period on reconsideration of the rule closes today.

CFA Joins in Lawsuit Against DOE Over Delays of Energy Efficiency Standards for Ceiling Fans—Jeopardizing Consumer Savings

The Department of Energy (DOE) announced last month that it was delaying until September energy efficiency standards which, once implemented, would provide net benefits worth over $12 billion. In response, CFA and the Texas Ratepayers’ Organization to Save Energy joined with environmental groups to sue the agency for illegally delaying the energy efficiency standards affecting ceiling fans.

The ceiling fan rule was formally issued and published on January 19, 2017, to go into effect on March 20, 2017. However the Trump Administration delayed the effective date, first, until March 21, 2017 followed by a second notice of delay until September 30, 2017.

The groups are challenging DOE’s efforts to thwart the ceiling fan rule as contrary to law. They are also concerned that failure to adopt cost-effective ceiling fan efficiency will cost consumers millions of dollars in energy savings. Efficiency standards have been proven repeatedly to save consumers money because the savings from reduced energy consumption far exceeds the cost of the technology needed to make the appliance more efficient.

“As a matter of law and practice, the agencies issuing standards must consider all of the benefits and all of the costs,” said CFA Director of Research Mark Cooper.  “The public relations ploy of citing only the costs and ignoring the benefits stops when the agency issues a rule.  The real facts take over and the reality is that energy efficiency standards have the unique effect of directly putting money into consumer pocketbooks.”

“This case represents the purest example of needless and illegal delay,” Cooper added.  “The rule is faithful to the statute, was written in accordance with the Administrative Procedures Act and saves consumers money. This is the perfect case to lay down the law.”

Groups Urge USDA to Halt Meat and Poultry Imports from Brazil

Despite evidence of widespread corruption and unsanitary practices in Brazil’s meatpacking industry, the U.S. Department of Agriculture Food Safety and Inspection Service (FSIS) announced last month that it would continue to allow imports of meat and poultry products from Brazil. Members of the Safe Food Coalition have asked the Department to reconsider its decision.

“Allegations of alarming practices—including company officials dictating the placement of health inspectors, health certificates being falsified, the use of cancer-causing chemicals to disguise rotting meat, and the shipment of contaminated meat to Europe—have led major U.S. trading partners to implement partial or total bans on meat products from Brazil,” the coalition stated. “These countries include Canada, Mexico, the European Union, Japan, South Africa, Saudi Arabia, Hong Kong, and Uruguay.”

U.S. and international law gives FSIS officials ample authority to enact a similar ban on Brazilian meat imports. However, the agency has not taken action, opting instead to re-inspect shipments of Brazilian beef and subject them to more rigorous pathogen testing. These half-measures “will expose American consumers to unnecessary risks, and American taxpayers to unnecessary costs,” according to the coalition.

The recent investigation is the latest in a series of revelations that have cast doubt on whether Brazil’s food safety system actually meets U.S. standards for “equivalency.” Past food safety problems, like excessive residues of the drug ivermectin, will not be targeted by FSIS re-inspections. Worried that U.S. officials will not adequately review whether Brazil’s food safety inspection system is actually “equivalent” until it is too late, Safe Food Coalition members urged the Administration to take action before American consumers begin getting sick.

“There is no good reason why U.S. consumers should be protected less from tainted imports than consumers in other countries, many of which have far fewer resources. Free trade should not trump food safety,” said CFA’s Food Policy Director Thomas Gremillion.

FCC Urged to Reject Proposal Allowing Business Data Services to Increase Already Inflated Pricing

On the heels of the Federal Communications Commission’s controversial decision to allow Internet Service Providers to sell customer data, the corporations that are the dominant providers of business data services are calling for further deregulation of this market as well, a move that would drain consumer pocketbooks of billions of dollars per year.

CFA and Public Knowledge wrote to the FCC urging it to reject a proposal they called “a blatant example of crony capitalism.” The high speed, always on connections that businesses have come to rely on for their routine communications have become a chokepoint for economic activity dominated by the major incumbent local exchange carriers: AT&T, Verizon, CenturyLink, and Frontier, the groups explained. The FCC’s extensive data gathering shows that the vast majority of consumers (over three quarters) are served by a single supplier. An additional twenty percent are served by a duopoly.

CFA and Public Knowledge’s letter to the FCC describes how the cost of these services is passed on to the consumer. Like fuel, rent and wages, the cost of business data services must be recovered as routine costs of doing business. CFA and Public Knowledge estimate that current overcharges are on the order of $20 billion, which amounts to $300 per household. Historical experience and the contemporary evidence gathered by the FCC indicate that further deregulation of BDS service could increase rates by 25%, adding between $10 and $20 billion to total overcharges.

The proposal by the dominant BDS providers is based on faulty assumptions including: a geographic market definition that is far too broad; the false identification of potential competitive entry into the BDS market; an inaccurate product market definition; and an incorrect definition of a workably competitive market.

Using reasonable definitions of product and geographic market as well as potential entrants, CFA and Public Knowledge’s analysis shows that the presence of four actual competitors lowers prices by 28% , and the addition of four potential competitors increases the price reduction to 43%. “Thus, the threshold for a market to be assumed to be workably competitive should be four actual and four potential competitors,” concluded CFA Research Director Mark Cooper. “A monopolist protectionist approach will not stand up to judicial review,” he added.