June 21, 2023

Analysts doubt DOL can produce a new fiduciary rule by August

WASHINGTON, D.C. – The Department of Labor claims it will produce its long-awaited fiduciary rule rewrite in August. But analysts here say that is highly unlikely.

Brad Campbell, partner at Faegre Drinker Biddle & Reath, was part of a panel discussion on annuity regulation today at the National Association for Fixed Annuities’ Annuity Leadership Forum.

“I don’t think they can do it that quickly,” Campbell said of the new fiduciary rule.

Agenda specifies August for fiduciary rule

The Labor Department unveiled its Spring Regulatory Agenda last week and targeted August for release of the rule it is curiously now terming a “Conflict of Interest in Investment Advice” regulation.

However, the Biden administration is battling to get Julie Su confirmed as secretary of labor. Acting secretary since March, Su is a divisive candidate who does not even have the full support of Senate Democrats, let alone Republicans.

It is unlikely the DOL will release what they are terming a major rule while remaining leaderless, Campbell said.

A fiduciary rule published during the Obama administration was tossed out by the Fifth Circuit Court of Appeals, so DOL regulators are likely taking extra time to craft rules that are sure to end up in court again.

Conversely, should the Su nomination get pulled, we could see “a flood of regulations,” Campbell said, as the DOL tries to offload anything significant it is working on to avoid tainting the next nominee.

Plenty of documentation

The panel could only guess as to the details of the new fiduciary rule, but a pair of prohibited transaction exemptions are certainly going to be under the microscope: PTE 2020-02 and PTE 84-24.

The former exemption was published by the Trump DOL as part of its investment advice rule. It allows investment advisors and broker-dealers to receive otherwise prohibited compensation, including commissions, 12b-1 fees, revenue sharing and other comp.

PTE 84-24 is an exemption originally granted in 1977, and amended several times over the years. It historically provided relief for certain parties to receive commissions when plans and IRAs purchased recommended insurance and annuity contracts and investment company securities.

The DOL does have have an idea on how to provide for conflicted compensation, Campbell said.

“With 2020-02, they did provide some expanded definition of reasonable compensation, but at the cost of all this additional documentation compliance,” he explained.

Meanwhile, the DOL is dealing with a pair of lawsuits filed against the Trump investment advice rule, which replaced the 2016 fiduciary rule that was vacated by the appeals court. The DOL recently opted not to appeal a ruling by a Florida judge striking down a portion of guidance issued in 2021 that expanded the definition of a retirement plan fiduciary.

The Federation of Americans for Consumer Choice seized on that decision to ask a Texas court to rule in its favor as well. Both lawsuits make similar claims that the DOL illegally widened its regulatory lane. The Texas lawsuit awaits a decision.

All producers and their overseers can do is keep plenty of documentation, said Andrew Payne, vice president and general counsel of CreativeOne, an independent marketing organization.

“It’s going to be a lot of documentation,” Payne said, calling it “A big technology lift.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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