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Image of a gavel on an open book and the words Fiduciary Rule, along with the logo of the US Dept. of Labor

Regulation and Compliance > Federal Regulation > DOL

BD, Insurer Groups Blast Fiduciary Plan at DOL Hearing

By Melanie Waddell

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Industry trade groups told the Labor Department Tuesday during the first day of a two-day online hearing to withdraw its new fiduciary proposal, the Retirement Security Rule: Definition of an Investment Advice Fiduciary.

The Securities Industry and Financial Markets Association, which represents broker-dealers, investment banks and asset managers, and the American Council of Life Insurers were among 45 groups, some supporting the proposal and some opposing it, that requested to testify at the hearing.

Lisa Bleier, associate general counsel for the Securities Industry and Financial Markets Association, told Labor officials in her testimony that the rule “is overly broad, unnecessary, and inconsistent with existing federal regulations such as the SEC’s Regulation Best Interest.”

As a result, Bleier said, “it could limit access to advice and education while also limiting investor choice in advisors.”

Said Bleier: “There are so many more areas of retirement law that deserve our attention, including helping more individuals save for retirement and for emergencies, increasing exposure to financial literacy programs, and helping individuals make their savings last through retirement. Let’s find better uses for our collective time.”

In her opening remarks at the hearing, Lisa Gomez, assistant secretary of Labor for the Employee Benefits Security Administration, said the “chief aim” of Labor’s new rule was “to make sure that when individual retirement investors turn to investment professionals for sound advice rooted in their best interest, they get just that — advice that is prudent, loyal, candid and free from overcharges.”

Labor’s planned rule “defining investment advice fiduciary are unnecessary” due to the SEC’s Reg BI, the National Association of Insurance Commissioners’ best-interest model and the department’s own Prohibted Transaction Exemption 2020-02, according to Bleier.

SIFMA members “made substantial changes in 2019 and 2020” to implement Regulation Best Interest, and some firms “instituted further changes to their practices to comply with PTE 2020-02,” Bleier continued.

“Flexibility in practices and firm arrangements provide individual investors with substantial choice in the marketplace, while still getting the benefit of financial professionals looking out for their best interest,” Bleier stated. “In fact, senior Department officials have acknowledged the validity of Reg BI as a strong standard.”

Nonetheless, Labor “has chosen to draft a regulation so broad as to make all conversations between a financial professional and an investor into ERISA fiduciary conversations,” Bleier maintained.

SIFMA sees “these changes as even broader and less tethered to the common law of trusts than the 2016 changes that were vacated” by the Fifth Circuit Court of Appeals decision.

The Department’s new proposal “is based on the arrangements a retirement investor makes with investable assets that are not even in an ERISA-covered plan or IRA,” Bleier maintained. “It is based on the financial professional’s business, rather than on the relationship of trust and confidence with respect to the plan or IRA at hand.”

‘Fatal Flaws’

Susan Neely, president and CEO of the American Council of Life Insurers, agreed that Labor should withdraw the rule.

The rule relies on “stale data and an incomplete cost-benefit analysis and curtails access to lifetime income products,” Neely told Labor officials in her testimony.

Labor’s cost-benefit analysis “has fatal flaws and misses the mark,” Neely said. The rule “cites studies that disregard the purpose of annuities.”

Neely contended that Labor’s rule is an attempt to “regulate sales speech [that] is actually regulating consumer access to financial products.”

The SEC’s Reg BI and the NAIC’s best-interest model “deal with the same conflicts without limiting consumer access,” Neely stated.

Reg BI and the NAIC model “provide a robust consumer protection for Americans planning for retirement,” Neely said.

Annuities, Neely stated, “are unlike any other finanical product: They are a legally enforceable promise made by an insurance company to provide monthly income throughout a person’s retirement. And unlike other financial products, an annuity provides a guaranteed income for life.”

Annuities and mutual funds differ, Neely continued. With a mutual fund, “the retiree assumes the risk,” Neely said. “With an annuity, the risk shifts to the insurance company and it guarantees lifetime income. It’s insurance.”

Melanie Waddell

@Think_MelanieW

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