DOL Fiduciary Rule Sent to OMB, But is it Too Late?

401k, retirement, fiduciary duty, DOL
Image credit: © Olivier Le Moal | Dreamstime.com

The Office of Management and Budget has received the Department of Labor’s fiduciary rule, known officially as Improving Investment Advice for Workers & Retirees. But it might be too late for the latest version that critics see as too friendly to industry interests, and expect a Biden Administration to revise.

According to the OMB’s website, it received the rule on Nov. 24 and will begin scoring the package for use in determining its implementation.

“The DOL appears to be trying to make it as burdensome as possible for the Biden Administration to revise this deeply deficient rule,” Barbara Roper, Director of Investor Protection for the Consumer Federation of America, said in an email Tuesday. “They are not alone in that. We’ve seen a similar rush to push through rules at the SEC on partisan votes that suggests the rules aren’t likely to last long in a new administration. However, this is one area where I believe the new administration will go through the hoops necessary to revise the rules, consistent with the Democratic Party platform, at both the DOL and the SEC.”

In June, the DOL announced that it would propose a new fiduciary standard based on a temporary policy put in place after the 5th Circuit Court of Appeals vacated the DOL’s previous rule in March 2018, and it will now “allow investment advice fiduciaries to receive certain forms of compensation once prohibited.”

The proposal would also allow investment advice fiduciaries to give “more choices for retirement using Impartial Conduct Standards” and include the DOL’s views on when rollover advice could be considered fiduciary advice under the ERISA and the Internal Revenue Code, based on its “Five-Part Test for Status as an Investment Advice Fiduciary.”

“Today’s proposed exemption would give Americans more choices for investment advice arrangements while protecting the retirement savings of American workers,” Secretary of Labor Eugene Scalia said at the time. “The exemption would add to the tools individuals need to make the right decisions for their financial future.”

The proposal was immediately criticized by opponents.

“This inadequate proposal will leave financial advisors free to put their interests ahead of their clients,” Senator Patty Murray, D-Wash., ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, said. “We need a strong fiduciary rule to protect people’s hard-earned savings—and we had one before Scalia sued the Department of Labor to strike it down.”

Roper testified before the Department of Labor in September about the rule and said it was wrong to reinstate the five-part test, which “enables firms to evade their fiduciary obligations in circumstances where they are clearly functioning as advice fiduciaries and are reasonably relied on as advice fiduciaries by retirement savers.

“What comes through loud and clear from these industry comment letters is that broker-dealers and insurers will be satisfied with nothing less than a full return to the bad old days when, as was documented at the time, firms could recommend rollovers without any regard to the best interests of the retirement saver and all too often did just that, costing retirement savers billions in lost savings,” she added.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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