Compliance June 17, 2015

Financial Planning Coalition Applauds Fiduciary Rule

Calls update to a 40-year-old rule “long overdue.”
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The Financial Planning Coalition has endorsed the Department of Labor’s proposed fiduciary rule. The coalition is comprised of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

“Secretary Perez and the Department of Labor have developed a comprehensive, carefully constructed fiduciary rule that will secure critical protections for American retirement savers and preserve financial advisers’ flexibility and adaptability, regardless of business model,” the coalition said in a statement. “This proposal to update a 40-year-old rule is long overdue, especially given significant, historical changes to retirement planning, requiring Americans to be more responsible than ever for making complex retirement saving and financial decisions.”

The coalition also said that Americans deserve to receive financial advice that is in their best interests and that it hopes the rule is implemented soon. However, the coalition plans to recommend some clarifications to the rule in a comment letter.

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Last year, the coalition issued a white paper, “Consumers Are Confused and Harmed: The Case for Regulation of Financial Planners,” that outlined many of the reasons why the group believes an updated fiduciary rule is necessary. The report noted that “Americans receive financial advice from advisers who use a wide range of titles and are subject to different, often inconsistent, regulatory and ethical standards [resulting in] financial planner professionals largely unregulated or under-regulated. As a result, many consumers have great difficulty selecting a financial planner and are harmed when they receive narrowly focused advice, single product solutions or advice that is not in their best interest.”

The Financial Planning Coalition conducted research and found that “over 100,000 financial service providers incorrectly self-identify as members of the financial planning practice, but do not actually offer comprehensive financial planning services. Lack of regulation of financial planners allows significant numbers of advisers, spurred by economic incentives, to hold themselves out to consumers as financial planners or providing financial planning services without meeting basic competency and ethical standards. Consumers are confused by the many titles that financial services providers use, which in conjunction with industry misrepresentation, makes it difficult for them to find competent and ethical financial planners.”

The white paper noted that there are three primary types of financial planners, each of whom is subject to different regulations. The financial planner who provides advice is regulated under the Investment Advisers Act of 1940 and is subject to registration either by the Securities and Exchange Commission (SEC) or the states, depending on the amount of assets they manage. They are held up to a fiduciary standard of putting the interests of their clients first.

Brokers are regulated under the Securities Exchange Act of 1934, must register with the Securities and Exchange Commission (SEC) and become a Financial Industry Regulatory Authority (FINRA) member. FINRA only requires them to recommend suitable securities to their clients. A financial planner who sells insurance products must be licensed by a state insurance department as either an insurance sales agent or an insurance consultant or adviser. “Unfortunately for consumers, this lack of regulation leaves significant gaps in the oversight of the delivery of financial planning services,” the Financial Planning Coalition said. “The current regulatory scheme that allows for non-fiduciary advice, dependent upon the services provided or the licenses or registrations held, is not appropriate or sufficient to fully protect consumers.”

The coalition noted that the “CFP Board has been a leader in protecting consumers and promoting excellence in the profession by establishing competency and practice standards, as well as a code of professional conduct through the Certified Financial Planner certification” and that today, there are more than 70,000 CFPs throughout the U.S. The new fiduciary rule would hold all financial planners up to this standard, the coalition said. “Establishing clear qualifications and standards for financial planners—similar to the standards established by the CFP Board—will enable consumers to distinguish between financial planners who are able to provide competent, comprehensive and ethical advice and those who offer limited product solutions without regard for the client’s broader financial interests.”

Earlier this year, the coalition issued its interpretation of the fiduciary rule, noting that under DOL’s proposed definition, a fiduciary adviser is “any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor, plan participant or IRA owner for consideration in making a retirement investment decision. The fiduciary can be a broker, registered investment adviser, insurance agent or other type of adviser. It is important to note that the DOL will determine who is a fiduciary based not on the adviser’s title, but rather on the advice provided to the client.”

The DOL, the coalition said, excludes some areas from the fiduciary obligation, namely, “general education on retirement savings, order-taking and brokers who pitch to large plans with a degree of sophistication.”

The DOL’s rule, the coalition continued, also “includes new, broad, principles-based prohibited transaction exemptions (PTEs) that can accommodate a range of evolving business models,” such as the “best interest contract exemption [in which] advisers and firms must enter into a contract with their clients that: commits the firm to enter into a contract with their clients that: commits the firm and adviser to providing advice in the client’s best interest; warrants that the firm has adopted policies and procedures to mitigate conflicts of interest; and clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.”

Comments received about the DOL’s proposed fiduciary rule can be found here.

Products June 17, 2015

State Street Publishes DC Plan Resource for Multi-Nationals

The paper provides insights to help multi-national companies with defined contribution plans (DC) in different countries.
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State Street Global Advisors (SSGA), the asset management business of State Street Corporation, released “Ten Best Practices for Global DC Plans.”

The paper provides insights to help multi-national companies with defined contribution plans (DC) in different countries approach them strategically to attract and retain talent and produce better retirement outcomes for employees.

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The “Ten Best Practices for Global DC Plans” fall into four categories:

  • Define a global vision and related goals and align benefits to support those goals;
  • Build efficient governance structures to minimize risk and ensure that plans in different countries support the overall goals;
  • Weigh the pros and cons of centralizing investment and other functions to achieve operational and cost efficiencies; and
  • Improve plans’ effectiveness for employees.

“In our discussions, we recognized that many clients find themselves with a patchwork collection of DC plans around the world, an accidental DC structure that developed as companies have grown globally over time,” says Nigel Aston, managing director, head of European Defined Contribution for SSGA. “The relatively simple step of articulating an overarching strategy can improve efficiencies between departments and divisions around the world, such as human resources, finance and legal that influence employee rewards. Our hope is that these principles will help improve the efficacy of DC plans and benefits packages as a whole.”

NEXT: Recommendations from the paper.

SSGA conducted dedicated listening campaigns with multi-national clients in the U.S., UK, continental Europe and Asia Pacific and China. This outreach included the first of a series of global forums to encourage dialogue and better understand, articulate and refine DC practices. SSGA also engaged consultants, academics and other practitioners to incorporate their views and gather strategic insights.

SSGA’s “Ten Best Practices for Global DC Plans” include the following recommendations:

  • Articulate total rewards goals globally, ensuring that they reflect the company’s core brand, culture and values. Those goals should be used to craft a strategic blueprint for the company’s retirement plan. Other goals, such as replacement ratios or other metrics needed to affirm the value of an overarching strategy, should also be included.
  • Seek ever-closer interaction between benefit functions globally. Recognize that DC plans fit into a wider network of benefits that may differ from country to country but must be considered in aggregate. Make sure to align the individual benefits in each country’s DC plan as closely as possible to the overall strategic vision.
  • Improve the plans’ ability to achieve plan objectives for employees globally. Work systematically to understand employee needs and priorities through research, employee data analysis, surveys and engagement. Use that data to drive higher savings rates, improved investment options and higher employee engagement globally.
  • Create a strong communications program that drives greater employee engagement with the retirement plan, improves retirement outcomes and builds employees’ confidence in their ability to retire.

The full paper is available to view here.

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