A diverse coalition of organizations is urging the Labor Department to update its fiduciary rule and comply with expected changes to last year’s fiduciary exemptions, arguing it should “protect retirement investors from investment advice tainted by conflicts of interest.” For” those changes are needed.
The group signing the letter of March 15 Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar This includes consumer protection advocates such as the Consumer Federation of America (CFA), Better Markets and the Public Investor Advocate Bar Association (PIABA), as well as veterans such as the AFL-CIO and the American Federation of Teachers.
Signatories are concerned that the current rules leave too many loopholes for advice providers to avoid fiduciary responsibilities.
“The current rule allows conflicting investment advice that puts the retirement savings of millions of Americans at risk and is inconsistent with the letter and spirit of ERISA, which aims to promote the retirement security of workers and retirees,” said Micah Hauptman, CFA’s director of investor protection said of the contents of the letter.
In 2018, Obama administration vacated by Fifth Circuit Court of Appeals Basic fiduciary rules for retirement advice, with Trump administration releasing Its own proposal in the summer of 2020, That new rule includes exemptions for fiduciary conduct, as long as providers adhere to “fair conduct standards” modeled after the SEC’s regulatory best interests. rule came into force in February last yearHowever enforcement was delayed until early 2022.
Khavar said last February that further guidance would be forthcoming, and that further rule-making potential was included on the Labor Department’s spring regulatory agenda last year, but has yet to submit to the White House for review, according to the new letter. Haven’t even been sent.
Critics of the opposite direction are currently winning Another legal challenge facing the Fifth Circuit, targeting the latest iteration of the rule. In the following, the Federation of Americans for Consumer Choice argued for a new interpretation of the ‘five-part test’ to broaden the definition of an “ongoing” client/provider relationship (thus potentially providing ERISA for those providers). Expanding the breadth of fiduciary obligations that meet once with customers, but with the potential for an ongoing customer relationship) was very difficult.
In the new letter to Khavar, the signatories write that this five-part definition actually makes it easier for providers to take away fiduciary responsibilities. The current design can result in providers providing “financially detrimental, if not disastrous, one-time recommendations” that may include unsuitable insurance annuities or risky non-securities.
“We see no justification for granting ERISA fiduciary protection only for advice given on a regular basis, while highlighting other similar and potentially more consequential advice,” the letter said.
The signatories also want the DOL to ensure that those who qualify for the exemption remain “explicitly subject” to ERISA standards, which the current wording of the exemption frame providers’ fiduciary obligations under “diluted” terms. Arguing using “best interest” terminology. Dry.
To them, the use of the term best interest (where providers should not put their interests ahead of investors’) creates a sort of “parity” between client and provider interests, as opposed to a fiduciary obligation which mandates that the provider only Act in the interest of investors.
Additionally, the signatories criticized the DOL for the modest disclosure requirements in the new testament. The DOL rule states that written disclosure was required, but that this requirement can be met by using disclosures made for Reg BI compliance as well as National Association of Insurance Commissioners (NAIC) compliance. Model Rules for Annuity Sales and Recommendations,
“There is no evidence, however, that these disclosures are effective,” the letter read. “Indeed, little testing that has been done indicates that they are not, which suggests that they do not satisfy the conflict disclosure standard set out in the guidance, i.e. ‘it is a reasonable person to assess the scope and severity’. is designed to allow for conflicts of interest of the financial institution and investment professional.”
