The Employee Benefits Security Administration (EBSA) has unveiled a new sales standard proposal that could affect investment advice fiduciaries that help retirement savers roll cash from retirement plans into individual retirement accounts (IRAs).
EBSA is an arm of the U.S. Department of Labor (DOL), and the new draft is likely to set off a new wave of battles over who should regulate annuity sellers, and how.
- A copy of the standards notice is available here.
- Links to that document and related documents, such as a fact sheet summary, are available here.
- An article about a new federal court Reg BI court ruling is available here.
DOL Secretary Eugene Scalia said in a comment in the proposal release announcement that the EBSA approach would give individuals the information they need to make good decisions.
The proposal “would give Americans more choices for investment advice arrangements, while protecting the retirement savings of American workers,” Scalia said.
EBSA is preparing to publish the proposal in the Federal Register and has posted a preliminary version on its own website.
Here are seven things to know about the new EBSA proposal, for financial professionals involved with annuities.
1. The new proposal is part of a long-running financial services sales standard fight.
The proposed standard is part of a long-running battle over how federal and state regulators should handle annuities, and between some fee-based advisors, who want anyone offering financial advice to abide by very strict standards, to avoid any hint of bias, and many commission-based financial representatives, who say that many consumers prefer to work with financial professionals without having to pay a fee.
The Employee Retirement Income Security Act of 1974 (ERISA) includes a provision requiring people involved with retirement plan assets to act as “fiduciaries,” and to make decisions in the best interest of the plan participants.
Critics argued that a “five-part test” used to apply the ERISA fiduciary provision was too vague and let commission-based con artists loot consumers’ retirement accounts.
When Barack Obama was president, the Labor Department completed work on a fiduciary rule regulation that would have imposed very strict, detailed requirements on indexed annuity sellers.
When Donald Trump became president, the department stopped defending the Obama-era approach to financial services sales standards, and the Obama-era DOL approach died in court.
The U.S. Securities and Exchange Commission is now implementing an alternative to the doomed DOL standard, Regulation Best Interest, or Reg BI, which imposes new disclosure requirements but continues to allow companies to pay commissions.
Many financial planner groups, investor groups and consumer groups have opposed the Reg BI-based approach, arguing that it does too little to curb aggressive, commission-driven sales practices.
The National Association of Insurance Commissioners (NAIC) has completed work on an annuity sales standards model that’s meant to be compatible with Reg BI. New York state has openly opposed the NAIC model. California has indicated concerns about the model but voted for adoption. Iowa and Arizona have both adopted the NAIC model.
The new DOL proposal would appear to be compatible with both Reg BI and the NAIC model.
2. Comments will be due 30 days after the official Federal Register publication date.
Preston Rutledge, the previous EBSA head, left the agency at the end of May.
Jeanne Klinefelter Wilson is now the acting assistant secretary of Labor who’s in charge of EBSA. Before she began working for EBSA, in 2017, she was a benefits lawyer at Continental Airlines and Waste Management and a benefits lawyer at Groom Law Group.
EBSA lists Susan Wilker and Erin Hesse as the proposal contact people.