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Exclusive Interview with Phyllis C. Borzi: Independent “Business Decisions” May Lead Companies to Apply Fiduciary Standard Broadly

Exclusive Interview with Phyllis C. Borzi: Independent “Business Decisions” May Lead Companies to Apply Fiduciary Standard Broadly
September 20
00:24 2016

It’s been a pleasure to have been able to converse with Phyllis C. Borzi, Assistant Secretary of Labor of the Employee Benefits Security Administration, through the years. She’s been a steadfast – and stalwart – proponent of the Fiduciary Standard. In many ways, her work to this end achieved capstone status with the announcement of the DOL’s new Conflict-of-Interest Rule earlier this year. While implementation remains well into the future, the impact of this ground-breaking regulation can be seen right now. Financial Engines, on the heels of its recent acquisition of The Money Store, is currently running a national advertising campaign citing its reps will act in a fiduciary capacity. This certainly speaks to the legacy of Borzi’s work.

Her role in the advancement of the fiduciary standard was recently recognized by the Institute for the Fiduciary Standard, who awarded her with its annual Frankel Fiduciary Prize. In making the announcement, the Institute said, “Assistant Secretary Borzi exemplifies the clear-eyed commitment to advancing fiduciary principles that the Frankel Prize is intended to honor. She has been resourceful and resolute throughout the long process leading to a new regulation that will benefit large numbers of American workers and their families by requiring loyal advice about investing retirement assets. Her unswerving commitment to the importance of fiduciary accountability in investment advice anchored her work.” Indeed, no less a paragon than Jack Bogle has said, “Phyllis Borzi has been trying to get this fiduciary standard for retirement plans adopted with more enthusiasm and more energy, (and) more opposition. She fought it all off and never gave up. And that’s why we have it today.”

FN: Assistant Secretary Borzi, it’s great talking to you again. First off, congratulations and being awarded the 2016 Frankel Fiduciary Prize by the Institute for the Fiduciary Standard. As our readers will no doubt soon learn, there is no more deserving candidate. A lot of water has gone under the bridge since the last time we interviewed you (see “Exclusive Interview with Phyllis C. Borzi: Why Plan Sponsors Shouldn’t Treat Their 401k Plans Like Cheap T-Shirts,”, September 23, 2013). Let’s take a quick moment to revisit what things were like several years ago. That was about the time the DOL first attempted to redefine the Fiduciary Rule. What were your expectations – in terms of administration support, industry reaction, and perhaps even the feel within the DOL itself – regarding this initial launch?
Borzi: Thank you. We actually first proposed a rule on Conflicts-of-Interest (“COI”) in retirement investment advice in 2010. We announced in 2011 that we would repropose the rule based on public feedback. I can tell you this: we learned from the mistakes that we made in the first proposal, came up with a much stronger rule, and then learned even more during the public comment period following the announcement of the new COI proposed rule in 2015. We knew we were going to get a lot of feedback on the proposal, and it allowed us to craft a final rule that will protect plan participants and IRA investors while ensuring they have access to the advice they need to grow their retirement savings.

FN: Once the first proposal went out, it seemed like we only heard one side of the story (mostly criticism). In what ways did this kind of media coverage surprise you? Since I’ve talked to you on occasion and know you had effective rebuttals to this criticism, was there a broader strategy in play for holding your cards close to your vest?
Borzi: One of the big issues was that there was so much going on with Dodd-Frank implementation at the time that many of our natural allies were distracted. After a long, hard fight, Dodd-Frank had been signed just a few weeks before our 2010 proposal was published. Making sure that the beginning stages of implementation got off on the right track absorbed the time and energy of people both inside and outside of government, including groups and individuals who were supportive of our efforts. Not surprisingly, there was not as much of a focus on the COI rule as there was a few years later when we reproposed.

And for most people, the notion that those who gave advice to others should be legally required to put their clients’ best interest ahead of their own financial interest seemed to be a no brainer. In fact, there were several surveys that showed that most people already thought that was the law and were shocked to hear it wasn’t.

FN: How did the naming of Tom Perez as the Secretary of Labor change the DOL’s approach on the new Fiduciary Rule?
Borzi: Secretary Perez understands this issue at a very deep level and at the same time is an incredibly strong advocate for worker protections. His contribution has been immeasurable. One of the best things he did, in my mind, was to step into the process and publicly announce that the department was going to take the time to talk to every single person who was interested in this rulemaking. And he did, we did, talk to anyone who came calling.

FN: What did it feel like to have the President of the United States hold a special (January 2015) announcement regarding the soon-to-be released new “Conflict-of-Interest” Rule?
Borzi: Nothing can compare to that excitement. I am particularly happy that a number of our career staff – the civil servants that do the real heavy lifting in these rulemakings – were invited to watch President Obama make the announcement. They have toiled non-stop for the better part of a decade on this and all the other rulemakings that EBSA has been involved in during this administration.

FN: The White House release on the subject included projection numbers on the impact of conflict-of-interest fees. What sources were used to calculate these numbers and why do you think the industry was never ever able to really overcome this overwhelming evidence?
Borzi: Although they cited some of the same studies we relied on in our work, the Council of Economic Advisers did an independent analysis and produced their report separate from the department’s own economic impact calculations, so I can’t really speak to that.

FN: OK, I’m going to ask you to peer in the crystal ball and think about the worst case scenario. Let’s say a court ruling, Congressional action, or a future administration halts implementation of the Fiduciary Rule. Has the cat already been let out of the bag? Even if it’s never implemented, how has the DOL’s efforts in exposing both the existence of conflicts-of-interest and the negative consequences produced an irreversible impact on the retirement plan market? How does this now generally accepted common knowledge make it easier for class action attorneys to make a fiduciary breach case against retirement plan sponsors – and possibly even service providers – even absent any formal “Rule.”
Borzi: All I can tell you is that we are focused on implementing the final rule and providing compliance assistance support to the industry.  That is as clairvoyant as I can be.

FN: Getting back to a reality where the Fiduciary Rule exists, we know the DOL’s Rule only applies to retirement accounts. It’s clear it will be problematic for brokers to tell clients “I will act in your best interests for your retirement money, but not for your taxable money. Given this, what, if any, are the potential scenarios where the SEC does not follow suit with similar regulations for taxable accounts?
Borzi: I couldn’t tell you what regulations or rules might come out of other agencies in the future.  What I can say is that some companies may make the business decision to simply provide the same level of care to all accounts.  But those decisions are going to be made company by company.

FN: Moving on to a different topic, let’s talk about “The Child IRA” concept and its potential impact on the future generations of retirees. A growing number of financial advisers are recommending “The Child IRA” [see these stories] as a way for parents to help encourage their children to save for retirement. Current laws limit opportunities to take advantage of The Child IRA only to those children with earned income. How might The Child IRA be used to help shield today’s children against the potential implosion of Social Security?
Borzi: First off, we are going to make every effort to strengthen Social Security in the coming years and decades. President Obama, Secretary Perez and many others in the administration have been clear on the need to buttress the program. Personal savings have always been an important component of a financially secure retirement.

FN: You’ve said you’ll be ending your tenure at the DOL at the close of the current administration no matter the outcome of this November’s election. You’re still young and vibrant. What’s next for Phyllis Borzi?
Borzi: What’s next is from now until January trying to finish up our unfinished business – such as implementing the COI rule, finalizing our state retirement initiative project, modernizing the way plans report information on 5500 forms, working to encourage sign-ups during another open enrollment season for the Affordable Care Act, finalizing the proposed changes for disability benefit claims, and continuing the agency’s important work on the Mental Health and Substance Use Parity Task Force. So my immediate future looks very busy.

FN: Would you like to share anything else with our readers?
Borzi: To serve as Assistant Secretary of Labor in the Obama Administration has been the highlight of my career – it has been an honor and privilege to serve, especially with my friends and colleagues at DOL and my exceptional EBSA team. No one could ask for a more dedicated and supportive group of individuals both in our national office and the field.

Recently I was visiting our Chicago regional office and at the Town Hall meeting I always hold whenever I visit our offices, I was asked what I will miss most when I leave DOL. Without hesitation I said, “You” – the EBSA staff.

Not everyone is as lucky as I am to have a job in which I can come to work each day knowing that what we do makes a difference in people’s lives. But whatever accomplishments I may have had during my tenure are certainly not my accomplishments alone. I have extraordinarily smart and talented staff who are always there to make an idea or policy approach a reality. And I am enormously grateful for their support and friendship.

FN: Assistant Secretary Borzi, it’s been an honor and a privilege to have been able to speak with you – both on and off the record – these past few years. Thank you for sharing your thoughts with our readers. I’m sure there will be more chapters to write in your story after January. And they will no doubt be just as interesting as the ones already written.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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