The Department of Labor’s fourth proposed fiduciary rule package since 2010 was released yesterday in a rollout that included a press conference led by President Joe Biden.
“We’re taking on junk fees. I can tell you what, if you come from a middle class family like I did, the thing that makes you angry, angry as hell, is these junk fees that they sneak into your bill. They take real money from middle class Americans. They weigh you down and make it harder to pay your bills,” Biden said in announcing the 700-plus pages of proposals the DOL published.
The independent broker-dealer, insurance and annuities industries, which would be swept into a fiduciary role when they charge commissions for retirement rollover advice, wasted no time in coming out swinging against the agency’s latest attempt to expand the definition of who is a fiduciary advisor.
“Ironically, the President is labeling this proposal as ‘retirement security,’ when it will actually worsen the existing retirement insecurity of millions of workers and retirees,” Wayne Chopus, President and CEO of the Insured Retirement Institute said in a statement.
Chopus said the draft rule, which would mandate that anyone offering first-time advice act as a fiduciary advisor, “will actually worsen the existing retirement insecurity of millions of workers and retirees” by making the price of compliance, and thus advice, unaffordable.
“I think this is the case of the DOL feeding the American investor liver and onions and calling it ice cream,” David Belair, executive vice president and general counsel, FSI said. “Despite claims to the contrary, the DOL has offered a sweeping proposal that would result in Main Street Americans losing access to the products and services they need to achieve a dignified retirement.”
A 2017 Deloitte study showed that more than 10 million smaller retirement account owners, with more than $900 billion in retirement savings, lost the ability to work with their preferred financial professionals as a direct result of the now-vacated 2016 DOL rule.
This is the second time in less than a decade that the DOL has introduced a regulation to treat all financial professionals who sell retirement planning products and services as fiduciaries.
An attempt at a similar rule in 2016 was invalidated as “arbitrary and capricious rulemaking” by the U.S. Court of Appeals for the Fifth Circuit in 2018, the IRI said.
An attempt by the agency to apply a fiduciary standard to one-time rollover advice was also overturned recently by the U.S. District Court for the Middle District of Florida, as “arbitrary and capricious.”
“We participated in the litigation that resulted in the Fifth Circuit decision vacating the prior DOL rule nationwide and it struck me in reviewing this new proposal that the DOL failed to learn the lessons that were taught to the by the court, including the fact that the DOL can’t change the meaning of Congress’s words in ERISA because they would have written the law differently. That includes one-time interactions,” Bellaire said.
FSI’s General Counsel declined to comment on whether or not the FSI would consider bringing another lawsuit against the agency to derail the latest fiduciary rule.
“I won’t talk about specific advocacy and tactical strategies we’ll pursue, but I guess I’d say you’ve seen the extent to which FSI will go to protect our members’ ability to deliver products and services to main street investors. We remain committed to that mission, which has been never-ending.
“We intend to engage with the DOL at every stage of the rule making process, and need to take a deep dive with members to see how this will impact them and their clients,” Bellaire said.
For starters, FSI intends to ask the DOL to extend the 60-day comment period on the proposed rules. The trade group is also planning to ask the agency to move the hearings on the proposal to after the comment period ends. It has currently been set at 45 days after the proposal is published in the Federal Register.
“We should be able to participate in hearing after we’ve developed our comments, not while we’re in the middle of that work,” Bellaire said.
The attorney argued that FSI member firms already have extensive compliance policies and procedures in place, including complying with the SEC’s Regulation Best Interest, which FSI supported.
“It’s not that we are against ensuring that Americas are getting best interest advice, it’s the extent to which the delivery of that advice has to be documented and our members will have to follow the regulatory hoops and hurdles which are redundant in another rule. That’s where all the complexity and costs come in that leave advisors no choice but to stop serving middle America,” Bellaire added.
The “genius of the independent model” is that it provides efficiency so that financial advisors, often dually registered, can help a small client open their first IRA on a commission basis or scale services for smaller clients with wealth management needs, Bellaire said.
Meanwhile, the CFP Board is supporting the DOL’s proposal and said it is time to update “the nearly 50-year-old framework” established under ERISA.
“The outdated law does not prevent advisors from taking advantage of gaps in the regulations to steer their clients into high-cost, substandard investments that pay the advisor well but eat away at retirement investors’ nest eggs over time,” the CFP Board said.
