The Department of Labor sent its long-delayed fiduciary rule rewrite to the White House Office of Management and Budget late Friday.
The move signals that the DOL has completed the rule, although its details are still unknown. OMB is charged with reviewing all rules for compliance with administration goals and budgetary priorities. If the OMB finds no objections, the rule will be released for public comment.
Despite the late-Friday rule release to OMB, industry lobbyists were ready with a flood of criticism for the effort:
Susan Neely, president and CEO of the American Council of Life Insurers: “The Labor Department must not adopt a fiduciary-only regulation like it did in 2016. First, most Americans cannot afford to engage a fiduciary investment adviser, who typically charge high, ongoing fees for their services.
“At a time when low and middle-income retirement savers need access to financial guidance and options for lifetime income, it would be a mistake to resurrect a fiduciary-only regulation that denied them both. In a recent Morning Consult survey, retirement savers overwhelmingly said they want the option to work with any type of financial professional who is offering products and services that meet their needs.”
Wayne Chopus, president and CEO of the Insured Retirement Institute: “DOL is plowing ahead with its latest damaging proposal despite the fact that federal courts have repeatedly rejected their efforts to expand the fiduciary rule in recent years, as well as the extensive body of research showing that this type of proposal will significantly harm lower and middle-income workers and exacerbate the wealth gap for Black and Latino families.
“Worse, the DOL proposal ignores the existing enhanced federal and state consumer protection regulations enacted since the earlier failed fiduciary rule. Those new protections require financial professionals to act in clients’ best interests, and there is no evidence to suggest they are not working.”
Marc Cadin, CEO at Finseca: “We have a $12 trillion dollar protection gap, and there are tens of millions of Americans with little to no retirement savings.
“We need to be encouraging more Americans to pursue holistic financial plans. We need to be connecting more Americans with financial security professionals. We need to exponentially grow the financial security profession and make their jobs easier, not harder. And, we need to remember that our work will only be done when every American can put their head comfortably on their pillow at night knowing they’ve got a plan in place and they’re going to be okay.”
Kevin Mayeux, NAIFA CEO: In a post Friday on NAIFA’s Advocacy in Action blog, Mayeux stated: “Actions by the Department of Labor to adopt a fiduciary-only rule for financial professionals are unnecessary and will harm consumers’ access to retirement security for the American middle class. When the Department of Labor put forward its ill-conceived fiduciary regulation in 2016, NAIFA reacted with its formidable grassroots power and used judiciary mechanisms to defeat it.”
A persistent fiduciary rule concept
Now termed “Conflict of Interest in Investment Advice,” the Biden DOL is taking at least the third major swing at extending a fiduciary obligation to financial professionals who work with retirement dollars.
Financial professionals say the industry will be looking at several key areas once the rule contents are known.
The DOL began discussing a wide-ranging fiduciary standard more than a decade ago. Since then, there have been many twists and turns along the way. They include:
In 2016, the Obama administration published a fiduciary rule that required a best interest contract exemption to sell fixed indexed annuities. The industry responded with several lawsuits.
In 2018, the Fifth Circuit Court of Appeals struck down the fiduciary rule.
The replacement investment advice rule was created by the Trump DOL and allowed to take effect by the Biden White House. It created a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and reinstated the “five-part test” to determine what constitutes investment advice.
Upon taking effect in February 2022, the rule was immediately sued in Texas by the Federation of Americans for Consumer Choice, and in Florida by the American Securities Association. Judge Virginia M. Hernandez Covington sided with the ASA in striking down a portion of guidance the DOL issued in 2021 that expanded the definition of a retirement plan fiduciary.
In the meantime, the Securities and Exchange Commission and 40 states have adopted versions of a best-interest rules for financial professionals not covered by a fiduciary standard.
“Combined, these actions have greatly enhanced the standards financial professionals must follow,” Neely noted. “They address the potential conflicts of interest the Labor Department attempted to address in 2016 without limiting access to annuities, the only financial product in the marketplace that can provide guaranteed income for life. When it vacated the 2016 fiduciary-only regulation, the 5th Circuit made clear that federal law does not support the Labor Department limiting consumer access to products and information.”
Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org. Follow him on Twitter @INNJohnH.
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