The Biden administration this year has made a concerted effort to crack down on what it calls “unfair and deceptive fees” faced by consumers, including those charged by internet and cable providers, concert promoters, airlines and banks.
Now you can add the retirement savings market to that list.
During remarks from the White House Tuesday afternoon, President Joe Biden said the unveiling of the Department of Labor’s new proposed fiduciary rule that defines who is an investment advice fiduciary for purposes of the Employee Retirement Income Security Act (ERISA) is a part of the larger effort.
“Junk fees take real money out of the pockets of Americans, and they add up to hundreds of dollars and weigh down family budgets, making it harder to pay the bills,” Biden said, before later adding: “When a person pays for trusted advice and it comes with a hidden cost, that’s what I call a junk fee. And I think it’s wrong.”
“All financial advisors giving retirement advice for selling retirement products would now have to have a fiduciary duty to their clients.”
President Joe Biden
Aligned with the Biden administration’s efforts to protect retirement investors, the proposal would require investment advisors to adhere to high standards of care and loyalty when they make investment recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.
“Today the Department of Labor is proposing a new rule meaning that when you pay someone for retirement advice, they must give you advice that’s in your best interest; not whether it gets them the best payday.”
The updated definition of an investment advice fiduciary would apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and others.
“All financial advisors giving retirement advice for selling retirement products would now have to have a fiduciary duty to their clients,” Biden said.
He mentioned that many financial advisors already have that duty, thanks to ERISA—but emphasized that law was passed back in the 1970s.
“A lot has changed with retirement savings since that law was passed 50 years ago. Back then, more workers had traditional pensions, IRAs were brand new and 401(k)s didn’t even exist,” he said. “Things are different now. But the rules haven’t caught up.”
Biden focused his remarks more on the need to target advisors selling what he called “bad annuities” with high commissions than talking about the 401(k) market specifically.
“Today’s announcement by the President is a significant step to get junk fees out of the retirement savings market.”
Acting Secretary of Labor Julie Su
“Most financial advisors give their clients good advice at a fair price and are honest with them. But that’s not always the case,” he said. “Some advisors and brokers steer their clients towards certain investments not because of the best interest of the client, but because it means the best payoff for the broker. And I get it, I understand. But I just want you to know, we’re watching.”
Acting Secretary of Labor Julie Su opened Tuesday’s White House ceremony and set the table for Biden’s roughly 15-minute speech.
“We’re implementing legislation Congress passed last year to transform the retirement system, and as part of that we’re making sure workers don’t lose money when they leave a job and enroll in their new employer’s 401(k) plan,” Su said. “Today’s announcement by the President is a significant step to get junk fees out of the retirement savings market.”
IRI blasts proposed regulation
The Insured Retirement Institute (IRI) released a statement late Tuesday saying President Biden’s proposed rule to impose new requirements on financial professionals will needlessly cause millions of lower- and middle-income workers to lose access to the financial advice they need to help prepare for retirement. The proposed rule, according to IRI, doubles down on a previously failed policy and clearly runs counter to Biden’s economic goals.
“This proposal is inconsistent and incompatible with President Biden’s stated priorities and the goal of Bidenomics to grow the economy from the middle out and bottom up by investing in all of America, empowering workers, and lowering costs for families,” said Wayne Chopus, President and CEO of IRI. “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.”
This is the second time in less than a decade that a regulation has been proposed 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.
“IRI and our members will once again work to protect retirement savers from this regulatory overreach.”
IRI President and CEO Wayne Chopus
“This unnecessary, redundant, and harmful proposal will have a significant adverse impact on the ability of lower- and middle-income workers to access professional retirement planning assistance and affordable retirement planning products, including guaranteed lifetime income products such as annuities,” Chopus said.
While the Biden Administration claims that the new rule is narrowly tailored, IRI believes that the rule is as sweeping as the vacated 2016 rule and dramatically expands the definition of fiduciary to include nearly all financial professionals.
“The President’s attempt to impose another harmful regulation on America’s workers and retirees despite federal court rulings and evidence of its devastating consequences is inexplicable,” Chopus said. “IRI and our members will once again work to protect retirement savers from this regulatory overreach.”
What’s next
The nearly 500-page proposed rule will have a 60-day public comment period—which isn’t nearly long enough, according to Jason Berkowitz, Chief Legal and Regulatory Affairs Officer at IRI. During a press briefing Tuesday, Berkowitz said considering Thanksgiving, Christmas, New Year’s Day and other religious holidays, there will likely be multiple requests to extend the comment period.
As of Wednesday morning, the official new proposed rule still had not been published in the Federal Register, which must occur to trigger the comment period. And expect there to be no shortage of comments from industry stakeholders, judging by the flurry of statements both for and against the proposed rule released Tuesday.
SEE ALSO:
• DOL Fiduciary Rule Released; Industry Reaction Pours In