Fiduciary Rule Reaction: For and Against

ARA among first to express strong support while several groups voice opposition
Fiduciary Rule reaction
Image credit: © Julián Rovagnati | Dreamstime.com

Early reactions from retirement industry stakeholders are rolling in today in the wake of the release of the Department of Labor’s controversial “Retirement Security Rule,” which is set to be published in the Federal Register on Thursday and scheduled to take effect in September.

“We welcome and applaud DOL’s Retirement Security Rule that updates the definition of investment advice under ERISA.”

ARA CEO Brian Graff

The American Retirement Association released a statement today applauding the new rule, saying it supports it for expanding and modernizing the definition of an investment advice fiduciary for purposes of the Employee Retirement Income Security Act (ERISA).

ARA believes the rule will strengthen the employer-based retirement plan system so that working Americans have the opportunity to achieve a comfortable retirement.

“The ARA has long supported the Labor Department’s efforts to modernize the definition of investment advice fiduciary that first went into effect almost 50 years ago. We welcome and applaud DOL’s Retirement Security Rule that updates the definition of investment advice under ERISA,” said ARA CEO Brian Graff. “As ARA works to expand retirement plan coverage for all Americans, the rule will ensure that advice given to plan sponsors with respect to plan investments under all circumstances is required to comply with the fiduciary standards of ERISA.”

The final regulation amends the regulatory definition of “investment advice.” Under ERISA, if someone is deemed to be providing investment advice, they must do so in accordance with ERISA’s fiduciary standards. Those standards require that investment advice must always be given in the best interest of retirement plans and participants.

“We agree with the principle that informs the Rule: investors are best served when the interests of advisors and investors are aligned, and the standards owed to investors should be product neutral,” Graff added.

The ARA said it supports the rule in part because of a significant regulatory “gap” regarding plan sponsors and the investment advice they receive.

While larger plan sponsors generally have access to the expertise and support of professional retirement plan advisors, an advisor who sells a small employer a 401(k) and has no further action (one-time interaction) with the plan or its participants is not, until this point, required to provide investment advice protection under ERISA (commonly known as the “five-part test).

“Since a plan sponsor is making decisions on behalf of participants, ARA believes it is essential, as provided in the Department’s Rule, that such a fiduciary plan sponsor be able to rely on the fact that their investment advisor will be subject to the same fiduciary standard of care regardless of whether such advice is just once or on a regular basis,” Graff said.

The provisions of the SECURE 2.0 Act of 2022 are expected to significantly expand the number of new plans, particularly those offered by small businesses. This gap could have left millions of employers and their workers at risk of receiving advice not in their best interest, something addressed in the final rule, ARA concluded.

CFP Board praises rule

In addition to ARA, the CFP Board also released a statement today praising the public release the new rule.

“CFP Board applauds the DOL for issuing the final Retirement Security Rule,” saying it addresses regulatory gaps and helps protect Americans from the costly effects of conflicts of interest by requiring financial professionals to provide retirement investment advice in their clients’ best interest.

Significantly, the DOL rule aligns with investor expectations for retirement investment advice, CFP Board says. A recent CFP Board survey found that 92% of Americans expect financial professionals to provide retirement savings advice in their clients’ best interests. “Further, 97% of investors agree that financial professionals giving retirement savings advice should be required to act in the best interests of their clients, even for one-time advice.”

The statement continued, the DOL rule won’t cause moderate-income investors to lose access to retirement advice.

“Workers and retirees deserve a financially secure and dignified retirement. The DOL’s Retirement Security Rule will provide investors with faith that their financial professional is delivering retirement investment advice in their best interest so that they can achieve their investment and retirement goals confidently and ethically. We look forward to offering more detailed comments after a careful review of the final rule,” CFP Board concluded.

Members of the Save Our Retirement coalition, along with a collection of more than 60 consumer, retirement, and labor groups (including AARP, AFL-CIO and the Consumer Federation of America), today commended the DOL’s final rule.

“The release of these rules is a major accomplishment that will help bring millions of retirement savers closer to a financially secure, dignified retirement. The DOL has finalized strong rules that will better protect workers and retirees by closing significant legal loopholes, so that the retirement investment advice they receive serves their best interests rather than the self-interest of financial professionals they turn to for advice,” the coalition said in a statement.

“We call on every member of Congress to reject any efforts to block these rules and, instead, stand up for the hard-working Americans who deserve no less than the protections these rules will provide.”

Opponents quick to voice objections

“In issuing this unnecessary and redundant rule, DOL disregarded data showing how millions of lower- and middle-income consumers will be deprived of access to affordable retirement planning assistance.”

IRI President and CEO Wayne Chopus

Of course, there is also plenty of opposition to the new rule, and legal challenges are widely expected to surface quickly now that the language of the final rule has been made public.

“Based on our preliminary review, in issuing this unnecessary and redundant rule, DOL disregarded data showing how millions of lower- and middle-income consumers will be deprived of access to affordable retirement planning assistance,” said Wayne Chopus, President and CEO of the Insured Retirement Institute. “This rule is the product of a severely flawed rulemaking process and defies applicable judicial precedent and the limitations on DOL’s rulemaking authority as established by Congress.”

Opponents of the rule including IRI, ACLI, NAIFA, and NAFA all stressed that the new rule is unnecessary due to existing regulations, pointing to SEC Regulation Best Interest (Reg BI) and the National Association of Insurance Commissioners (NAIC) best interest model regulation, adopted in 45 states and counting. The groups say that provides an enhanced consumer protection framework covering more than 90% of the U.S. population.

“These measures represent a better way to protect consumers than the Department’s ill-advised regulation. They enhance the standards financial professionals must follow, and, unlike the Labor Department’s fiduciary-only approach, they safeguard consumers’ access to, and information about, annuities, the only financial product in the marketplace that can provide guaranteed income for life,” said ACLI President and CEO Susan Neely.

“This new rule reflects DOL’s belief that these robust federal and state regulations do not effectively protect consumers, but DOL has offered no current, real-world evidence that the current regulatory framework is not working,” IRI’s Chopus said. “Under this rule, consumers will pay the price in lost opportunities to plan for a secure and dignified retirement.”

Opponents also expressed dismay at the hurried process the DOL took to put forth the rule, which included an abbreviated public comment period and a swift review from the White House Office of Management and Budget.

“NAIFA is very disappointed but not surprised that the Department of Labor has hastily published its final rule that places harmful restrictions on American retirement savers. The fiduciary-only rule, if left in place, will curtail the ability of low- and middle-income consumers to get much-needed help with their retirement preparation,” said NAIFA CEO Kevin Mayeux. “My latest testimony on the rule to the Office of Information and Regulatory Affairs resulted in no questions or comments from White House officials present. The abbreviated public comment period and lack of engagement were clear indications that the White House and DOL were merely going through the motions and had no intention of seriously considering our input.”

By moving forward with the Rule, NAIFA’s Mayeux added that the DOL is ignoring the real-world experience that NAIFA members saw first-hand before the 2016 Fiduciary Rule was vacated. He noted a brokerage model with commissions works very well for many consumers while others are better served by fee-based models. The new DOL rule would restrict the ability of consumers to choose.

Mayeux said that over 90% of NAIFA members say the DOL rule will significantly increase their costs and costs for their clients. Currently, 70% of NAIFA members require no minimum asset thresholds for their clients. With the DOL rule in place, he said only 28% say they will be able to continue serving clients without imposing minimums.

“It’s obvious that under the DOL scheme many families lacking large account balances will be left to fend for themselves in a very complicated and often confusing retirement-planning landscape,” Mayeux said.

A statement released today from Chuck DiVencenzo, CEO of the National Association for Fixed Annuities, pulled no punches in its disdain for the new rule.

“At a time when Americans are looking for independent advice on their financial decisions in retirement, the DOL crystallized its desire to halt all progress and instead shift the retirement landscape into chaos and contradiction. Dubbed the Retirement Savings Rule, this wolf in sheep’s clothing has been finalized with utter disregard for critical, data-supported concerns NAFA and others in the industry have repeatedly presented,” DiVencenzo said. “The DOL is blatantly snubbing the National Association of Insurance Commissioners’ efforts to create a uniform regulatory landscape that ensures annuity professionals consistently work in their clients’ best interest. And the hurried, superficial process of gathering stakeholder input is indicative of the DOL’s willingness to prioritize optics over outcomes.”

DiVencenzo said the sweeping rule will upend independent distribution, minimize consumer choice, and leave everyday retirement savers in the lurch. “Raising the cost of advice to the detriment of Americans who most need retirement planning guidance and support is simply indefensible.”

In its statement, IRI said it advised the President, the White House OMB, and DOL that the regulation imperils the benefits provided under measures in the SECURE Act and SECURE 2.0, two bipartisan laws to strengthen retirement security for workers and retirees enacted since 2019.

“This final rule will significantly impair consumers’ ability to fully take advantage of the intended benefits of these historic legislative achievements,” Chopus said. “Our collective goal should be to build on the progress of those laws and ensure the existing regulatory framework protecting consumers is enforced. We should not advance new regulations that will worsen retirement insecurity for our nation’s workers and retirees.”

“We will examine the rule in detail to see how the DOL has responded to the hundreds of comment letters it received providing detailed public input on the proposal.”

ICI President and CEO Eric Pan

IRI said it will support a Congressional Review Act (CRA) resolution to reject the DOL regulation. The CRA allows Congress to disapprove a regulation—meaning it would have no further force and effect—within a specified period after a rule is final. The House and Senate must each pass the measure, and the President must sign it.

For its part, the Investment Company Institute took a guarded approach, saying time is needed to digest the just-released 826-page Retirement Security Rule.

“ICI is reviewing the DOL’s final rule, bearing in mind the concerns we raised with the agency that it may raise costs and interfere with middle-class savers’ access to the guidance, products, and innovative tools they rely on to meet their retirement goals,” said ICI President and CEO Eric Pan.

“We have always strongly supported the principle that financial professionals should act in their clients’ best interests when offering personalized recommendations, as the SEC’s Regulation Best Interest for broker-dealers already requires,” Pan continued. “We will examine the rule in detail to see how the DOL has responded to the hundreds of comment letters it received providing detailed public input on the proposal.”

SEE ALSO:

Capitol Hill Fiduciary Rule Reaction: Praise and Ridicule

• DOL Final Fiduciary Rule Released, Set to Become Effective in September

• DOL to Issue Final Fiduciary Rule on Tuesday

• Insurance Trade Groups Flag Concerns Over DOL Fiduciary Rule Process

• Gomez: DOL Fiduciary Rule Seeks to ‘Level the Playing Field’

• Final Fiduciary Rule Coming Soon as OMB Completes Review

Brian Anderson Editor

Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.

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