WASHINGTON, DC (May 23, 2017) — National Association of Federally-Insured Credit Unions (NAFCU) Executive Vice President of Government Affairs and General Counsel Carrie Hunt wrote today to the Department of Labor urging that the repeal of the department’s fiduciary rule be a top priority.
In the letter, Hunt said the association and its members are concerned that the rule casts too wide a net and “unfairly burdens credit union activity with complex requirements and potential litigation risk.” Because of these risks, she added, credit unions may decide that it is no longer worthwhile to recommend an investment advisory credit union service organization to a member or to make certain investment recommendations related to rollovers or transfers.
“Credit unions are different than most other types of financial institutions. Since the Great Depression, the credit union industry has defined itself as ‘not for profit, not for charity, but for service,’ and that shared philosophy has endured to this day,” Hunt wrote. “As financial cooperatives directed by volunteer boards, credit unions exist for the primary purpose of serving their membership – not for earning fees on investment brokerage.”
Hunt also pointed out that the fiduciary rule’s Best Interest Contract Exemption would impose a costly burden on credit unions, which would have to adopt anti-conflict policies before engaging in certain types of advisory activities.
“NAFCU believes that there is little merit in requiring credit unions to comply with a complex fiduciary duty requirement when available data does not suggest that the ‘conflicts’ envisioned by the final rule have ever detracted from credit unions’ high standards of member service,” Hunt wrote.
In March, NAFCU submitted comments to the Labor Department supporting the 60-day extension of the date of applicability for the rule, which is now June 9. In that letter, the association also urged that the rule be revoked, or at the very least, that credit unions be exempted from its requirements.
Below please find the full text of the letter:
May 22, 2017
The Honorable Alexander Acosta
Secretary
United States Department of Labor
S-2521
200 Constitution Ave, NW
Washington, DC 20210
Re: Fiduciary Rule Delay
Dear Secretary Acosta:
On behalf of the National Association of Federally-Insured Credit Unions (NAFCU), the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions, I would like to share with you NAFCU’s thoughts on the Department of Labor’s (DOL) “Fiduciary Duty Rule.” In March 2017, NAFCU submitted comments to DOL supporting the 60 day extension of the date of applicability for the rule. However, at that time, we also recommended that DOL revoke the rule entirely, or in the alternative, provide an express exemption for credit unions. Under your leadership, NAFCU hopes that DOL will make repeal of the Fiduciary Duty Rule a top priority.
Credit unions are different than most other types of financial institutions. Since the Great Depression, the credit union industry has defined itself as “not for profit, not for charity, but for service,” and that shared philosophy has endured to this day. As financial cooperatives directed by volunteer boards, credit unions exist for the primary purpose of serving their membership—not for earning fees on investment brokerage.
The National Credit Union Administration (NCUA) has traditionally stated that federal credit unions may not act as broker-dealers in securities or provide investment advice of the type that would render them “investment advisers” under state or federal securities laws.[1] While the Fiduciary Duty Rule covers these types of activities, it also covers transactions and relationships that are significantly broader in scope, including a significant number of transactions and relationships relating to individual retirement accounts (IRAs).
NAFCU and our members are concerned that the Fiduciary Duty Rule casts a wide net that unfairly burdens credit union activity with complex requirements and potential litigation risk. For example, the requirements of the rule are triggered when an individual provides a “recommendation,” which is defined as “a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.”[2]
Given the rule’s extraordinarily broad scope, credit unions may decide that it is no longer worthwhile to recommend an investment advisory credit union service organization (CUSO) to a member to either set up an IRA or create an employee welfare benefit plan (if the member is a business). This is because the Fiduciary Duty Rule defines “investment advice” to include “a recommendation as to the…selection of other persons to provide investment advice or investment management services.”[3]
Along similar lines, a credit union may decide to withhold certain investment recommendations relating to rollovers or transfers that would otherwise constitute sound investment advice. This is because an individual is also considered to be providing “investment advice” under the Fiduciary Duty Rule if he or she makes recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, “including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made.”[4]
Although the Fiduciary Duty Rule provides a Best Interest Contract Exemption, it imposes costly burdens by requiring credit unions to adopt anti-conflict policies before offering certain retirement planning recommendations. Credit unions frequently rely on third parties or CUSOs to act as broker-dealers; however, the rule would require extensive analysis of existing business relationships to determine whether there are conflicts of interest. Performing this type of analysis on a semi-regular basis will impact the prices consumers must pay to access retirement planning services and disrupt existing third party arrangements, resulting in less choice and fewer options among investment products. Traditionally, credit unions have served their members’ best interests by building trusted relationships, and the success of the credit union model has never depended upon the imposition of sweeping fiduciary standards.
NAFCU believes that there is little merit in requiring credit unions to comply with a complex fiduciary duty requirement when available data does not suggest that the “conflicts” envisioned by the final rule have ever detracted from credit unions’ high standards of member service. Conversely, there is no shortage of evidence describing the accompanying reduction in consumer choice that would follow enforcement of the rule. Accordingly, DOL should revoke its Fiduciary Duty Rule in order to promptly comply with the February 3, 2017 Presidential Memorandum directing DOL to rescind the rule if it frustrates the goal of advancing financial choice and independence. Alternatively, DOL should seek to exempt all credit unions from the scope of the final rule.
NAFCU appreciates the chance to submit comments regarding DOL’s proposed extension. Should you have any questions or concerns, please do not hesitate to contact me, or Andrew Morris, Regulatory Affairs Counsel, at amorris@nafcu.org or (703) 842-2266.
Sincerely,
Carrie Hunt
EVP of Government Affairs and General Counsel
The National Association of Federally-Insured Credit Unions is the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions. NAFCU membership is direct and provides credit unions with the best in federal advocacy, education and compliance assistance. For more information on NAFCU, go to www.nafcu.org or @NAFCU on Twitter.
