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Regulation and Compliance > Federal Regulation > DOL

Perez: DOL took fiduciary rule comments seriously, made changes

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The Department of Labor’s rule to change the definition of fiduciary on retirement advice should emerge from the Office of Management and Budget “sometime in the near future,” and the final rule will include changes, Labor Secretary Thomas Perez told members of the House Education and the Workforce Committee Wednesday.

During a hearing held by the committee on DOL’s policies and priorities, Rep. Phil Roe, R-Tenn., voiced his concern to Perez that there is “no indication that the final rule will be any different” from the one proposed in 2010.  

But Perez noted the lengthy comment period the rule underwent, adding that the DOL heeded the concerns raised about designating employee stock ownership plans as fiduciaries, and removed ESOPs from the rule that’s undergoing OMB review. (Perez testified before the Senate Appropriations Committee last Thursday).

“We heard a lot of concerns about ESOPs and took them out” of the conflict of interest rule, Perez said. “Our North Star is an enforceable best interest standard,” he added, stating that DOL “has read every one of” the 300,000 comments that came in on DOL’s rule.  

Rep. Matt Salmon, R-Arizona, asked Perez for assurance that under DOL’s fiduciary rule, “the law of unintended consequences” doesn’t limit access to advice for low- and moderate-income savers.  

“We have a shared interest to make sure everyone has access to retirement advice,” Perez responded. “At the end of our process, we look forward to explaining the changes we made and how we intend to proceed.”

Roe introduced the Affordable Retirement Advice Protection Act (H.R. 4293), which was approved by House Workforce and Education Committee on Feb. 2 along with the Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act (H.R. 4294), introduced by Rep. Peter Roskam, R-Ill. Both bills seek to replace DOL’s conflict of interest rule.

Perez stated during his Wednesday testimony that he believes the bills “move the status quo backwards” in ensuring retirement savers receive unconflicted advice.

Rep. Mike Bishop, R-Mich., asked Perez to ensure the final rule would address concerns raised about the treatment of variable annuities and “keeping [them] under the 84-24 prohibited transaction exemption,” permit commissions on sales of proprietary products, and changes to the best interest contract exemption.

Perez responded that DOL has taken the comments on those issues “seriously,” adding that “when we reach the end of the process we will explain the proposal, the changes we made and why we did what we did.”

Roe also noted results of a United Kingdom government study, released Tuesday, that confirms an investment advice gap for low- and middle-income individuals following the 2013 adoption of a rule directly banning third-party payments to advisors in connection with investment advice.

“DOL’s proposed fiduciary definition rule would have the exact same effect of banning third-party payments to advisors,” says Kent Mason, a partner with Davis & Harman, a Washington-based law firm that represents big financial companies. “The reason that this is true is that the only way for an advisor to accept such payments is to use the proposed best interest contract exemption, which to my knowledge no financial institution can or will use.”

The U.K. rule, Mason says, triggered a “massive exodus of advisors from the small account market.”

A survey of advice firms found that over the last two years, the proportion of firms who ask for a minimum portfolio of more than £100,000 (approximately $142,000) has more than doubled, from around 13 percent in 2013 to 32 percent in 2015.

“In other words, since the new regulation took effect in 2013, minimum asset thresholds for advice have soared, just as predicted by the industry in the U.K. and by the industry here” in the U.S., Mason says.

Mason also noted that the U.K. regulator’s own survey revealed that “45 percent of firms very rarely advise customers on retirement income options, if those customers have small funds (i.e. less than £30,000 to invest) [approximately $42,600].”

See also:

What’s next for variable annuities after DOL fiduciary rule?

NAIFA team to DOL: Make the fiduciary rule workable — or else!

3 outstanding questions about the DOL’s proposed fiduciary rule

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