NERA Analysis: Comment on the Department of Labor Proposal and Regulatory Impact Analysis

An analysis by the National Economic Research Associates (NERA) on the U.S. Department of Labor’s (“DOL”) proposed conflict of interest rule and definition of the term “fiduciary” under ERISA (the “proposal”), and associated Regulatory Impact Analysis (“RIA”). The estimates in the above documents form the basis of the Department of Labor’s argument that the proposed conflict of interest rule would provide a net “benefit” to the public.

To study these costs associated with the DOL proposal, NERA also collected account-level data from a number of financial institutions in order to construct a representative sample of retirement accounts.  The dataset includes tens of thousands of IRA accounts, observed over a period from 2012 through the first quarter of 2015.

See Also:

United States Department of Labor: Conflict of Interest Proposed Rule

See Also:

• Executive Summary
• The Fiduciary Rule Itself
• Best Interest Contract Exemption (BIC exemption)
• Prohibited Transaction Class Exemption (“PTCE”) 86-128
• Prohibited Transaction Class Exemption (“PTCE”) 84-24
• Prohibited Transaction Class Exemption (“PTCE”) 75-1, Part V
• Additional Exemptions
• Asset Management Group
• Deloitte Report on the Anticipated Operational Impacts to Broker-Dealers of the Department of Labor’s Proposed Conflicts of Interest Rule Package

Read Full Study

 

Excerpt 

Executive Summary 

NERA Economic Consulting has been retained by SIFMA to review and comment on the U.S. Department of Labor’s (“DOL”) proposed conflict of interest rule and definition of the term “fiduciary” under ERISA (the “proposal”), and associated Regulatory Impact Analysis (“RIA”). The estimates in the above documents form the basis of the Department of Labor’s argument that the proposed conflict of interest rule would provide a net “benefit” to the public.

To study these costs associated with the DOL proposal, NERA also collected accountlevel data from a number of financial institutions in order to construct a representative sample of retirement accounts. Our dataset includes tens of thousands of IRA accounts, observed over a period from 2012 through the first quarter of 2015.

Briefly, our findings are as follows:

• The DOL proposal may effectively make the commission-based brokerage model unworkable for investment accounts covered by ERISA due to the operational complexity and costs of compliance that would be required under the Best Interest Contract Exemption. Using our account-level data, we find that:
  • Some commission-based accounts would become significantly more expensive when converted to a fee based account under the DOL proposal.
  • Investors can and do select the fee model (commission vs. fee) that best suits their own needs and trading behavior.
  • A large number of accounts do not meet the minimum account balance to qualify for an advisory account.