December 26, 2023

DOL fiduciary rule comments number 14,000+ as opposing views harden

Federal regulators are releasing a steady trickle of the more than 14,000 public comments on the Department of Labor’s contentious fiduciary rule proposal.

One week remains until the Jan. 2 deadline to comment on the rule, which the DOL has fast tracked since its Halloween release. The DOL posted recordings this week of a two-day public hearing held Dec. 12-13.

DOL officials steadfastly refused to extend the comment period or defer the public hearing until comments were made public.

The current iteration of the rule is the department’s fourth attempt to apply a tougher standard to rollover sales of insurance products. The last two rules, in 2016 and 2020, ended up in court after industry trade associations brought lawsuits.

The DOL released its latest fiduciary rule attempt on Halloween, with President Joe Biden joining for a press conference to denounce “junk fees.” The rule was widely criticized by industry trade groups who claim the extension of fiduciary duty to virtually anyone recommending an annuity would have a chilling effect on advice to middle-market savers.

Commenters take sides

The main rule is officially known as “Definition of an Investment Advice Fiduciary.” Comments have poured into the government’s Regulations.gov website over the past couple weeks. Not surprisingly, registered advisors and consumer advocates favor the rule, while mostly everyone else is opposed.

A random sampling of three comment letters:

1. Mark J. Warshawsky, senior fellow at the American Enterprise Institute. Warshawsky called on the DOL to rescind the proposed rule, claiming it has not “made a compelling case nor offered sufficient evidence.” AEI is a dominant right-wing think tank known for opposing higher taxes and bigger government.

“On the assumption that most retirement investors, including plan sponsors, are ignorant and naïve, you assert that disclosure measures would be insufficient: only the force of government—backed by the prospect of private legal actions—can offer the right level of protection,” Warshawsky write. “Yet despite the litany of studies cited, you offer no direct support to this essential claim nor define the optimal level of protection.”

The studies cited by the DOL in support of its rule are weak and conflicting, Warshawsky stated. The department walks a tightrope between complimenting best-interest efforts from state insurance regulators and the Securities and Exchange Commission, while ultimately being critical, he added. There is no analysis of the costs associated with complying with overlapping rules.

“For a market to perform efficiently, not all need be fully knowledgeable, just the marginal actor, and you have not shown that the market is failing,” Warshawsky wrote.

Warshawsky noted the 2018 federal appeals court decision vacating the Obama administration’s fiduciary rule. Current efforts to square the new rule with that decision have only added “more ambiguity and uncertainty,” he said.

“I am not a legal expert but my intuition is that there is significant legal risk here for this regulation,” he concluded.

2. Ron Rhoades, associate professor of finance at Western Kentucky University. Rhoades, who also owns a registered investment adviser firm, Scholar Financial, testified live during the DOL public hearing. He provided several pages of additional comments in written form.

The DOL has the authority to extend fiduciary duty to everyone selling financial products from retirement plan accounts, he maintained, and “has acted reasonably in doing so.” Rhoades seized on the “trust and confidence” issue the court used in tossing the Obama fiduciary rule. The DOL claims even a one-time sale of an annuity creates a relationship of trust and confidence.

“Gone are the days when annuities were relatively straightforward products,” Rhoades wrote. “And, over the years, both registered representatives and insurance agents have been trained in relationship-based selling, as well as trust-based selling. It should come as no surprise that, by broadening the scope of their services and advice, and seeking to have customers believe they can be trusted.”

Rhoads goes on to suggest that the DOL “encourage” plan sponsors to only higher financial advisors “who eschew product-related compensation.” Critics have long suggested that the DOL wants to eliminate commission compensation and Rhoades puts it down on paper.

“It is possible that commission-based compensation be eliminated,” he wrote. “Every commission can be transformed into a clearly understandable fixed fee that would be paid directly by the consumer. There is no need today for product-based compensation, and the conflicts of interest posed.”

3. Richard Argotsinger, head of Argotsinger Wealth Management in Highlands Ranch, Colo. In business since 1986, Argotsinger is a certified financial planner who noted his commitment to the higher fiduciary standard.

Still, he is opposed to the DOL extending that standard to everyone.

Having a choice of “investment vehicles” is one of the most important factors in getting clients the right personalized financial plan, he wrote. Argotsinger agreed with industry opponents who say it will limit access to retirement products. It will also limit what he can offer, he added, noting that his clients choose how to pay him.

“Far from being a ‘junk fee,’ commissions are an important way that advisors are able to serve those who may not otherwise be able to afford to work with an advisor because they have less investable assets,” Argotsinger explained. “If this rule is finalized, I will be unable to work with smaller accounts or help lower and middle-income savers plan for retirement. This will most impact those earning below $100,000 per year.”

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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