Compliance Amid Chaos

Despite a number of recent shifts and reversals in federal and state fiduciary laws, Karen Scheffler has managed to keep financial-services firm AllianceBernstein aboveboard

Karen Scheffler; SVP, Senior ERISA Counsel, and Assistant Secretary; AllianceBernstein

It’s tough for financial-services businesses to keep up with regulatory changes in normal times. But government oversite these days is anything but normal, and that keeps people such as Karen Scheffler on their toes. Scheffler is senior vice president, senior ERISA counsel, and assistant secretary at AllianceBernstein, a New York City-based investment management company with annual revenues of $2.7 billion. Since joining the firm in 2016, she has had to wade through the ever-shifting tides of fiduciary regulations in order to keep the company compliant.

Scheffler was hired, in large part, because of her former experience working for the US Department of Labor (DOL) in the area of ERISA (Employee Retirement Income Security Act) law. The DOL had proposed new fiduciary requirements, and AllianceBernstein wanted someone in place to address them when they were finalized. “We all thought I would have a couple months to learn the business and get to know everyone,” Scheffler says. But, just two weeks after setting up her desk, the final regulations were released. “I stayed up all night poring over more than one thousand pages,” she says. “I had to become an expert fast to help the company understand the impact on its businesses.”

In many ways, she was already an expert in the field at that point. Originally from Southern California, she studied law at Hofstra University, in New York. “I expected a career in mediation, but fate directed me to a job at the Department of Labor right out of law school,” she says. “I got deep, intense training with regard to the ERISA—the kind of expertise that would take years to get somewhere else. Once I had this expertise, I decided to stay in that area.”

She added to her expertise while working at Deloitte Touche, where she learned the tax side of retirement-plan law as well as other areas of compensation and benefits, including deferred compensation and equity plans, mergers and acquisitions, and health and welfare plans. Then, fifteen years out of law school, “I took my first law firm job,” she says, “looking at the documents and issues with a specific lawyer’s eye. I learned the significance of language and nuance in negotiations.”

In all, she worked at three different law firms, becoming a partner in charge of the compensation and benefits practice at the last one. “I thought I’d be there until I retired,” she says. “Then AllianceBernstein enticed me away. I saw it as the culmination of all my past experience coming together in the perfect opportunity.”

She learned about the company’s businesses quickly, thanks to her coworkers. “I couldn’t have been successful if AllianceBernstein wasn’t the company it is,” she says. “People in this company are truly invested in helping one another. Any questions I had were answered right away.” This was helpful as she assessed the demands of the DOL’s new regulations, which required cooperation and coordination from many departments. The analysis of the new regulations took months, but in the end, they turned out not to be as onerous as anticipated. “AllianceBernstein has a fifty-year history of processes and procedures and a commitment to compliance,” Scheffler says. “So, while it took a lot of effort to make sure we complied and to respond and work with all our business partners, this was not as much of an upset to our businesses as it may have been to other companies.”

But, just when she and her team thought they fully understood the new regulations, everything changed again—and again, and again. First, the president issued an executive order requiring the DOL to review the rules. Then, it was sued for exceeding its regulatory authority. The DOL issued interpretive frequently asked questions and extended the deadline for compliance with some of the more controversial and onerous requirements. In March 2018, the Fifth Circuit Court of Appeals struck the suit down, and on June 21, it issued its mandate revoking the rule in its entirety. “So, the path to compliance has been a complicated one,” Scheffler says.

Meanwhile, also as of June 2018, the Securities and Exchange Commission (SEC) had proposed a fiduciary rule of its own. If finalized, many questions will be raised as to how to reconcile the SEC rules with the DOL rules. Everyone will be waiting to see if the DOL will provide guidance to help businesses understand how to comply. And, if that isn’t confusing enough, several states, including New York, Nevada, Maryland, and Illinois, have passed or proposed their own fiduciary rules.

Maintaining understanding of the legal standard of care is a fundamental concern in providing investment-management services. When federal rules come up against state rules, Scheffler says, “it adds layers of confusion in trying to understand how to comply and how to train your people. And, the more uncertainty there is regarding different rules and where they apply, the more challenging it becomes.”

So far, her firm’s businesses have not been greatly affected by the chaos, she says, but without her in place, things could have been much more harried. “I came from a regulatory background, and I take a fairly conservative approach to compliance,” she says. “Fortunately, AllianceBernstein has a similar philosophy. So, I’m confident that no matter what rules are passed, I and AllianceBernstein will be ready for the challenge.”

Photo by Brian Dolphin