chairman of Carey Financial LLC.
The Investment Program Association formed a Fiduciary Task Force, later nicknamed the “Four Horsemen,” that participated in meetings and wrote comment letters to educate lawmakers and officials about the industry and its concerns over the Labor Department’s fiduciary rule. As a result of the IPA’s efforts, some of its biggest concerns were addressed in the final version of the rule.
The task force was composed of Keith Allaire, managing director with Robert A. Stanger & Co.; Mark Goldberg, chairman of Carey Financial; Nathan Headrick, managing partner of Triloma; and Wayne Souza, general counsel and an executive vice president of the Walton Group.
Goldberg, Headrick and Souza spoke with SmartBrief during the Investment Program Association’s 2016 Executive Leadership Summit, held in Washington, D.C., on April 19.
How the Fiduciary Task Force began
Headrick: We were all involved in really getting the advocacy wing of the IPA started about four years ago. Around that same time is when [the Financial Industry Regulatory Authority’s Regulatory Notice] 11-44 came out, and then we were also on a little subcommittee that worked with FINRA to make some rather important improvements to that rule before it came up in final form. And so we had a little connection there that led to us working together in that same subcommittee format, if you will, on the DOL issue. So we’ve got a little bit of history. …
The first thing we did as a group was end up hiring Jones Day, and there’s no way to have a discussion about the progress we made without talking about the great work that they did.
Goldberg: We vetted several law firms, and we were fortunate to pick Jones Day. They were terrific.
Souza: They did an outstanding job. They worked hard, and they know the subject area.
Meetings, comment letters and testimony
Goldberg: The “foot in the door” was the day on the Hill a year ago. Three [IPA] members were visiting with Elizabeth Warren’s office. … [Warren’s head of economic policy] turned to me and said, “Have you read the rule?” I responded, “Yes, all 700 pages!” That proceeded into a long conversation. I asked her about the background behind the rule, what the intentions of the DOL were, why they felt it was necessary. … This hourlong discussion led to her encouragement and assistance in securing a meeting with the Department of Labor.
Headrick: We had 100 meetings last year; that was one of them, and it was the magic one that got us in to talk. … And then I think simultaneously with all of that, it slowly was sinking in with a lot of folks that parsed the initial rule that this was going to have significant impact on our industry. And if you looked at the definition of assets that could be included in the [best-interest contract exemption], they itemized what securities were specifically on this list of assets, and nontraded REITs and BDCs, which are a huge part of this industry, were excluded, and private equity. …
One of the things that Mark set as the tone for the first meeting is we didn’t go in and say: “Hey, this rule stinks; we’re going to get rid of it. We’re going to fight against it every way we can” — or even go in and say, “You should get rid of the whole best-interest-contract thought, or the whole asset-list thought,” which a lot of people had reacted that way. We actually went in with a much more targeted and thoughtful approach when we were willing to explain to them why our products matter, why they’re useful in people’s portfolios, and in a lot of cases they didn’t really know our industry well at all. So that educational piece was important. …
And by the way, the DOL was willing to listen. I think a lot of people in the DOL have taken a lot of flak in the process. At the end of the day, they listened to a lot of the commenters and they changed a lot of things.
Goldberg: I felt like there was openness and an interest in understanding the industry.
We also learned, at least I did, that ERISA has a different vernacular than the securities business. … So we did trip up a little bit, at first, but it helped us put together what I thought was a thoughtful, mostly educational comment letter. … And I believe they appreciated that approach.
Headrick: I think the education piece became tremendous because, by the time we got to the end version of the rule, there was signifcant opening in their ability to create a mechanism to allow for commissions.
What the experience taught them about how to approach advocacy
Souza: Engagement in good faith intended to determine where the other side is coming from, what their concerns are and what they want to achieve is critical to industry-regulatory cooperation. That to me sums it up.
Goldberg: Contstructive engagement. And that extends to the FINRA [Regulatory Notice] 15-02, as well. [Editor’s Note: Regulatory Notice 15-02 addresses how per-share estimated values are disclosed in account statements for direct participation program and nonlisted real estate investment trust securities.]
Headrick: When we first started IPAPAC … and we had 20 people who showed up at the Hill day, and we had to go through a process of getting people to realize that — even though this is a relatively small industry association given the larger financial-services industry — one or two key small meetings with an open mind and a logical approach can make all the difference. And it did.
Goldberg: So one meeting on the Hill led to another meeting at the DOL, which led ultimately to testifying at the hearings. The mutual educational process that we had with them led to a more refined strategic ask, because we understood their principles and core objectives. Only then did we have a direct ask. Post-testimony we met with them again. … This allowed us to further refine and submit our final comment letter