23 July 2019

‘COBRA’s Mother Takes on Wall Street Over 401(k)s

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Phyllis Borzi spent decades helping invent ways to protect people from unpleasant surprises in their health and retirement plans. Never did she run into the kind of resistance finance firms have mustered against her latest idea.

And rarely has the industry met a bureaucrat so difficult to shut down.

Borzi, an assistant secretary at the U.S. Labor Department, has spent four years battling the full force of the financial lobby, interference from the White House and pressure from lawmakers of both parties over rules for individual retirement accounts and 401(k) plans.

She has long argued that people’s retirement savings can be eroded by high fees or imprudent investments recommended by advisers with hidden incentives. She is pushing for brokers to be held to a legal standard that they must act in a client’s best interest, an obligation known as a fiduciary duty.

Firms including Morgan Stanley and Fidelity Investments, which say the change would hurt, not help, small investors, appeared to have won the latest round last month. Yet neither side shows signs of backing away. In speeches, Borzi invokes the movie Groundhog Day, in which events are relived over and over. Financial lobbyists see it as a game of Whac-A-Mole. No matter how many times they pound her down, Borzi keeps popping up.

“She does not pander to the industry,” said Barbara Roper, director of investor protection for the Consumer Federation of America, which backs Borzi’s effort.

‘Iron Fist’ 

Consumer advocates compare Borzi to Gary Gensler, the ex-U.S regulator who clashed with Wall Street as he tried to make private trading of derivatives more transparent. Roper said the comparison is apt -- up to a point.

Gensler’s style “is more iron fist, velvet glove,” Roper said. “Phyllis doesn’t bother with the glove.”

Industry groups say Borzi’s efforts are misplaced, because if there are brokers who take advantage of clients, they’re a tiny minority. The Securities and Exchange Commission, the states and self-regulatory organizations already police the industry for such conflicts, they add.

“There is no evidence of a crisis, no evidence of a problem,” said Kenneth Bentsen, president of the Securities Industry and Financial Markets Association, known as Sifma, Wall Street’s largest lobbying group.

‘Happy Face’ 

The story of Borzi’s quest shows how one individual in the government can drive a policy forward by dint of her own will and conviction. Yet her failure thus far is a lesson in what happens when that idea collides with longstanding business practices that involve trillions of dollars.

Borzi’s most recent setback came late last month when the Labor Department quietly issued a notice postponing her proposal until January. It had been expected to be released in August. The move left her small band of supporters outside government wondering if their chances for success were waning.

“I don’t know how you put a happy face on it,” said Knut Rostad, a compliance officer at an investment advisory firm and founder of the Institute for the Fiduciary Standard. “If someone was going to be sober about it, they’d say we are running out of years.”

Borzi (pronounced BOR-zhee) has been unusually silent since the delay, which comes after she was forced to withdraw her original fiduciary regulation in 2011. Her spokesman Mike Trupo didn’t respond to requests for an interview.

Click here for the full article in Bloomberg.

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