Labor Secretary Alexander Acosta confirmed in early May that the Department of Labor would indeed issue its own fiduciary-related rules. Exactly what form they’ll take remains unclear, but industry officials’ educated guesses surmise that a full-blown fiduciary rule like the one vacated by an appeals court last year is not in the works.
During his testimony before the House Education & Labor Committee on May 1, Acosta said that Labor is collaborating with the Securities and Exchange Commission as it works on its advice-standards package, which includes Regulation Best Interest, and that “based on our collaborative work, we will be issuing new rules in this area.”
SEC Chairman Jay Clayton signaled to reporters after his comments at the Investment Company Institute annual conference in Washington a day later that it wouldn’t be long until Reg BI was before the commission for a vote.
“Whatever DOL does, and they will do something, it will be ‘in harmony’ with Reg BI,” Steve Saxon, who specializes in Title 1 of the Employee Retirement Income Security Act at Groom Law Group, told me at press-time in mid-May. “Remember the Temporary FAB is just that — temporary,” Saxon said, referring to Labor’s temporary enforcement policy under Field Assistance Bulletin (FAB) 2018-2, “where the DOL said temporarily it would not enforce ERISA prohibited transaction rules” for those acting as a fiduciary.
“Assuming the SEC is issuing Reg BI fairly soon, DOL doesn’t want to lag too far behind if DOL wants to capture IRA rollover recommendations,” Saxon added. “And they do. But I don’t think DOL will touch the 3(21) Reg. They don’t think they have to.”
The 3(21) Reg defines who is a fiduciary by reason of providing investment advice, Saxon explained, and “includes the so-called five-part test that was revised” under the now-vacated fiduciary rule.
Fiduciary Exchange Acosta announced Labor’s fiduciary plans during an exchange with Rep. Marcia Fudge, D-Ohio, during an oversight hearing held by the House Education and Labor Committee. Here’s Acosta’s exchange with Fudge:
“For far too long, certain, not all, retirement advisors have put their interest above their clients. Workers across this country are demanding a higher standard of care,” Fudge said. “They deserve peace of mind when planning for their retirement. The Department of Labor owes it to the workers of America to fully implement current rules and regulations put in place to ensure that they receive unbiased and fair advice. What is your plan to protect these workers?”
Acosta replied: “Congresswoman, first let me say, you are correct. Like all industries, the investment industry has some bad actors and individuals need to be protected. As you’re aware, the fiduciary rule was struck down by an appeals court. It was held to exceed the statutory authority — ” Fudge interrupted: “I just want to know what you’re going to do, sir.”
Said Acosta: “I’m getting to that … so the department is working with the SEC. The SEC was asked by Congress to look at modernizing the protections in these —”
Fudge interrupted again: “Sir, I’m asking what are you going to do? What is your Department of Labor going to do?”
Acosta replied: “The Department of Labor is working with the SEC; the SEC was asked by Congress to come up with appropriate responses to protect these individuals; we are communicating with them [the SEC] and based on our collaborative work, we will be issuing new rules in this area.”
Fudge then asked: “When will that be?”
Acosta Replied: “The SEC is in the process of producing those rules. We’re working with an independent agency.”