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DOL Transcript Shows a True Fiduciary Friend as Phyllis Borzi Brooks No Bull

April 06
22:06 2011

Phyllis Borzi, Assistant Secretary of the Department of Labor’s Employment Benefit Security Administration, challenged those offering testimony at the DOL’s Fiduciary Hearings last month right from the get go. “The world has changed,” began Borzi on 567913_68355938_bullfighter_stock_xchng_royalty_free_300that first day of a two day hearing on the proposed new definition of fiduciary. “The security of American retirement plans depends on its fiduciaries,” she said. Borzi warned the audience, “ERISA protects retirement benefits by holding important plan actors to fiduciary standards, protecting workers and retirees from conflicts of interest and providing remedies for violations.” (For a complete transcript of Borzi’s opening statement, see “Transcript of Phyllis Borzi’s Opening Remarks at March Fiduciary Hearings,” Fiduciary News, April 5, 2011.)

But the Assistant Secretary, no mere opening speaker, became an ardent advocate for retirement plan investors, asking insightful follow-up questions and at one point even pitting several speakers against each other, a surprise strategy one might have expected from the former academic.

Borzi’s pointed questions started with the very first panel, when she cornered Karen Prange, Executive Director and Assistant General Counsel for JP Morgan Chase and Company into admitting disclaimers could not supersede the actual function of the service provider. Many in the brokerage industry had hoped to overcome the fiduciary hurdle simply by disclosing they do not provide fiduciary services. Borzi explained to Prange the statute creates a functional test, making any disclaimer irrelevant. Prange was forced to agree.

In the next session, Borzi spooked Ken Bentsen, Executive Vice President for Public Policy and Advocacy at the Securities Industry and Financial Markets Association. Bentsen, on behalf of SIFMA, insisted the DOL should wait until the SEC has a chance to fulfill its Dodd-Frank duty. Rather than ask Bentsen a question, Borzi asked Bentsen to ask his co-panelists a question. Admittedly unprepared, Bentsen likened it to “a dissertation presentation.” Still, he used the opportunity to continue his case. In the end, Borzi interrupted him to point out “it’s easy for you to say from the outside that there’s no coordination or not enough coordination,” but then assured all for the public record none of the agencies had any interest in tipping Dodd-Frank.

The third panel featured Ross Bremen, a partner in NEPC’s defined contribution practice. According to Bremen, NEPC is one of the largest consulting firms in the country, serving over 290 plan sponsors and about $350 billion in assets. He tried to make the case a non-discretionary adviser cannot act as a fiduciary. Borzi appeared to mimic Peter Falk’s Columbo as she feigned ignorance and asked Bremen to define “non-discretionary.” It’s possible Borzi, unlike Bremen, knows the banking industry has two kinds of trustees – directed and discretionary. Both types of trustees are held to the same fiduciary standard. After the innocent set-up, Borzi delivered a series of quick questions and, like Prange before him, managed to get Bremen to admit it doesn’t matter what you call yourself, all that matters is what you do.

Several times during the hearing witnesses testified to coordinating all fiduciary issues among the different agencies. Much has been written about “harmonization,” but here is what Borzi actually said on this matter: “So our goal is to harmonize, but I just want you to understand that harmonization does not mean that we are simply going to roll over and play dead. I hear people say, well you need to wait to see what the FCC is doing or the CFTC, because you can’t move forward under your statutory authority until we see what they do. That suggests to me that what you are suggesting to us is that our efforts are inferior to those other agencies’ efforts, and I hope that’s not what you are saying, but please tell me if that is what you are saying?” The witnesses cowered and admitted they weren’t saying the DOL should defer to any other agency.

Borzi and the DOL believe “the types of advisory relationships that give rise to fiduciary duties should be reexamined and that the rule should be updated so that plan fiduciaries receive the impartiality they expect when they rely on their adviser’s expertise and advice.” In reading her cross examination of the witnesses at the DOL hearing, it’s clear she understands some of the semantic tricks of those opposed to broadening the definition of fiduciary. She promises the DOL will “issue final regulations by the end of the year in accordance with the timetable that we have announced publicly.”

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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