Industry Players Weigh In on the DOL's New Fiduciary Definition

Despite substantial concerns voiced by members of Congress and echoed in the thousands of comments from consumers, the department chose to move forward with a regulation that is alarmingly similar to the department’s 2016 regulation.

Before it was struck down by a federal court, that regulation resulted in more than 10 million American workers’ accounts with $900 billion in savings losing access to professional financial guidance.

The department also has chosen to ignore the significant progress made to strengthen consumer protections since 2018. To date, 45 states have adopted the ‘best interest of consumer enhancements’ in the NAIC Suitability in Annuity Transactions Model Regulation.

More than 90% of Americans now live in a state that has adopted a best interest standard for annuity sales. These new laws and regulations also align with the SEC’s Regulation Best Interest, providing robust consumer protections at the state and federal levels.

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.

The regulation is out of touch with real-life issues facing retirement savers. More than 4.1 million Americans will be turning 65 each year through 2027. Most of them will not have access to traditional pensions and will need options for lifetime income like annuities provide. Now more than ever, public policy should expand and not limit people’s options for retirement.

The department’s actions also defy legislative efforts to tackle retirement vulnerabilities for middle-income earners. The U.S. Congress reaffirmed the importance of lifetime income when it passed legislation in 2019 and 2022 that made it easier for employers to include annuities in workplace retirement plans. Regulations that impede this progress cannot and will not stand.

ACLI will carefully scrutinize the regulatory package and consider what can be done to ensure retirees have access to the professional help and financial products they want and need for a secure retirement.

Dale Brown, CEO of the Financial Services Institute:

We are carefully reviewing and analyzing the rule. However, we remain concerned that the final rule will have a negative impact on Main Street Americans’ access to financial advice as they attempt save for a dignified retirement.

Our members already adhere to an extensive regulatory regime, including the SEC’s Regulation Best Interest and the DOL’s existing PTE 2020-02. We are concerned that the new rule will limit retirement savers’ access to professional financial advice, products and services offered by independent financial advisors and firms and create a more complicated, burdensome and costly regulatory environment.

In addition, the abnormally rapid pace of this rulemaking raises additional concerns. With the quick turnaround between the comment period deadline and the final rule release, we question whether the DOL could adequately assess and address the comments raised.

In January, FSI submitted a comment letter to DOL outlining the organization’s concerns with the proposed rule. Additionally, a study conducted by FSI and Oxford Economics found that the proposed rule would result in over $2.5 billion in costs and 120 million pieces of paper annually.

Marc Cadin, CEO of Finseca:

I continue to believe the DOL is conducting an ideological campaign to ban commissions, as evidenced by their inflammatory and offensive framing of this rule when they initially proposed it, the un-American and absolute disgrace of the lightning pace at which they have pushed this rule through, and the lack of questions or even spirited debate on the substantive issues within this rule.

When I testified before the DOL in December, I received zero questions and zero comments. They didn’t challenge or entertain a debate on any of my assertions. The same was true in our most recent — and final — meeting with them; we received zero questions and zero comments from either OMB or DOL.

We were clear that OMB should not let this fiduciary-only approach move forward because it would cause real harm to real Americans. It will make it harder for Americans to access financial advice, it will make it harder to bring new professionals into the business, dramatically raise costs for the profession, and make millions of people less financially secure.

As I told Congress in January, this rule not only flaunts the bipartisan will of Congress over the last four decades, but also it takes our country in exactly the wrong direction. Millions of Americans already have a retirement savings gap in the trillions.

In the next decade, Social Security will go insolvent. Our national debt is nearly $35 trillion. The only possible answer is more private-sector solutions.

Research from Ernst and Young has clearly shown that a holistic financial plan that includes life insurance, especially permanent policies, investments, and deferred income annuities, outperforms investment-only or investment-plus-other-products approaches in every combination.

More Americans need access to financial security professionals to create those holistic plans so they can absorb the challenges that life throws their way.

At a time when we need to encourage more Americans to pursue holistic financial plans, we must expand access and choice to advice — not limit it.

Wayne Chopus, president of the Insured Retirement Institute:

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.

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.

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. Under this rule, consumers will pay the price in lost opportunities to plan for a secure and dignified retirement.

Chuck DiVencenzo, CEO of the National Association for Fixed Annuities:

It has been obvious from the outset that the DOL was intent on continuing its quest to push the regulatory boundary of IRAs past the original congressional intent of the Employee Retirement Income Security Act of 1974 under false pretenses supported by back-of-the-napkin calculations.

The process has been marred by a paucity of meaningful engagement between the DOL and industry stakeholders.

Instead, the department has dangerously rushed to put into effect a rule that disregards the value of independent distribution, the desire for Main Street savers to work with the professional service providers of their choosing and the need for products that can provide predictable lifetime income.

Ultimately, we anticipate more confusion, higher costs and less financial security for low- and middle-income savers who need it most.

Recently, fixed annuity sales have experienced several quarters of record sales numbers, in part due to consumer concerns about ongoing market volatility and longevity risk.

Annuities are the only financial product that allows retirement savers to protect a portion of their nest egg from market declines while providing the opportunity to earn interest and generate a predictable stream of income payments that last a lifetime.

Meanwhile, according to the Investment Company Institute, approximately $6.9 trillion in assets are held in more than 710,000 401(k) plans, on behalf of about 70 million active participants and millions of former employees and retirees.

The new rule is expected to significantly hinder the ability of independent annuity professionals to use annuity products to help Americans move some of their hard-earned retirement savings out of such defined contribution plans into a vehicle that can help augment their retirement security.

This administration has repeatedly cited its desire to institute commonsense policies that help protect consumers from financial harm.

Yet here we are with new regulations that contradict robust, uniform consumer protections that have been implemented by the states to ensure that financial professionals are providing recommendations in their clients’ best interests.

Currently, according to LIMRA data, more than 40% of annuity sales are conducted by those professionals in the independent channels, which will unquestionably be most negatively impacted by the burdensome compliance requirements of this rule.

Instead of celebrating the hard work these professionals do to combat retirement savings challenges, the DOL is effectively threatening their livelihoods and the future of millions of Americans they diligently serve.

The National Association of Insurance Commissioners:

We continue to have significant concerns about the potential impact of the Department of Labor’s final fiduciary rule on access and choice for American retirees to certain life insurance and annuity products.

These products have been recognized by multiple administrations of both political parties as an important option for retirees to manage their risk of outliving their savings.

The final rule, which was rushed through the administrative process at DOL and the Office of Management and Budget with virtually no coordination with state insurance regulators, also discounts the work of 45 states and counting to enhance consumer protections for these products by adopting the NAIC’s Suitability in Annuity Transactions Model Regulation, which extends a level playing field to products sold within and outside a retirement plan.

(Credit: Chris Nicholls/ALM)