DOL Secretary Questioned Over Proposed Fiduciary Duty Rule
July 22, 2015 by Frank Klimko
Lawmakers questioned U.S. Department of Labor Secretary Thomas Perez over the possible unintended consequences of a proposed rule that would extend conflict of interest fiduciary duty requirements to brokers and dealers — including those who provide consumer retirement advice.
U.S. Sen. Johnny Isakson, R-Ga., chairman of the Senate Labor subcommittee on Employment and Workplace Safety, said the proposed rule could make it harder to deliver the retirement advice that many Americans need.
“The new rules would most limit the access to the advice for those people that need it most,” Isakson said. “I think this is a solution in search of a problem. We have heard that one-third of personal advisers would have to leave the business because of the rule.”
Perez said the rule changes advances retirement security and preserves consumers’ choice on how to plan for retirement, invest their savings and meet their financial goals.
“The rule is about putting the best interest of consumer first when they are getting help in retirement,” Perez said. “Some assume that this rule already exists, but there is no rule to that.”
Because the department has been flooded with comments on the proposed rule, it will extend the comment period and hold three days of public hearings next month to address concerns about how it is written, Perez said. The department is working to make amendments to the rule and is open to advice, particularly from industry groups, Perez said.
“The majority of folks are trying to do good things in this space,” Perez said. “Our goal is to align the best interest of the customers with those of advisers and firms. This is about guard rails and not strait jackets.”
Industry groups and trade associations expressed dismay with the proposed rule. The Americans for Annuity Protection this week launched a grass-roots campaign for brokers and dealers to derail it (Best’s News Service, July 20, 2015).
And, the American Council of Life Insurers said the issuance and sale of variable annuities is already regulated more comprehensively than most financial products for retirement through a network of state and federal laws and mandates.
“Variable annuities are highly regulated products, uniquely providing consumers with guaranteed lifetime income,” Gary Hughes, ACLI executive vice president and general counsel, said in a public comment to the DOL. “For many, this product constitutes an important component of their retirement portfolio.”
The National Association of Insurance and Financial Advisors was cool to the proposed rule, which it said needed more work.
“In its current form, the proposed rule presents major — and in some cases insurmountable — obstacles for NAIFA members serving middle-market retail investors,” NAIFA wrote in its comments to DOL. “NAIFA does not oppose a ‘best interest’ fiduciary standard for its members. However, any new standard must be operationalized in a fashion that is workable for Main Street advisers and their clients.”
The fiduciary-duty rule was first proposed, and then withdrawn by DOL in 2010. It was published this year in the Federal Register on April 20. The DOL and the Securities and Exchange Commission are proposing the changes as a way to protect workers and retirees against receiving conflicted investment advice.
Supporters of the rule change note that the retirement landscape is much different today than it was when the Employee Retirement Income Security Act of 1974 was enacted. Over the past few decades, there has been a major shift from defined benefit plans to defined contribution plans in the private sector. Most 401(k) and IRA account balances are modest, and rising life expectancy and health care costs can mean that retirees could outlive their retirement savings, New York State Comptroller Thomas P. DiNapoli said in a public submission to DOL.
