DOL is Out of Bounds on Fiduciary, Congressional Leaders Say
By Arthur D. Postal
InsuranceNewsNet
WASHINGTON – The Department of Labor is overstepping its authority with its expanded fiduciary rule and should allow adequate public comment in the process, according to a letter sent by two congressional chairmen to the Office of Management and Budget.
The OMB is reviewing the DOL’s proposed regulation to apply the fiduciary standard on the sale of investments into retirement accounts, which often falls under the suitability standard. The DOL withdrew an earlier attempt at the rule in 2011.
Sen. John Boozman, R-Ark., chairman of the Senate Subcommittee on Financial Services, and Rep. Ander Crenshaw, R-Fla., chairman of the House Subcommittee on Financial Services, both have oversight of OMB, especially when dealing with financial services issues.
The chairmen also rang an alarm on consumer choice and protection.
“We strongly believe the DOL rule will significantly harm low and middle income investors seeking financial advice regarding their retirement and will cause unintended consequences to many Americans’ IRA accounts by limiting access of investment advice,” the chairmen wrote in the letter.
They also said the DOL was out of bounds in the first place, reminding the OMB director that the Dodd-Frank Act gave the Securities and Exchange Commission the responsibility of developing a uniform fiduciary standard of care for broker/dealers and investment advisors. The DOL is claiming oversight under the Employee Retirement Income Security Act (ERISA).
“We believe the cumulative effects of the of the SEC and DOL rulemakings will lead to inconsistent and overlapping regulatory requirements that increase investor costs and reduce access to investment advice,” the chairmen wrote. “For that reason, we believe the SEC should move first in any rulemaking in order to address issues of investor harm and confusion surrounding different standards of care.”
The letter also asks the OMB to ensure that when the DOL releases the proposal, the public have at least 90 days to review it under federal notice-and-comment procedures.
The OMB has 60 days to scrutinize the proposed regulation. That clock started Feb. 24, when President Barack Obama said he supported the program and gave the go-ahead for OMB to start the regulatory process for approving it.
The public should be allowed to “comment on any proposed rule, proposed exemptions, regulatory impact, and cost-benefit analysis,” the letter said.
Robert Lewis, vice president, legislative affairs at the Financial Services Institute, supported the letter in a released statement, “The DOL, if they have truly listened to the industry and members of Congress from both sides of the aisle, should welcome a 90-day process and thorough review at OMB.”
Lewis said that research shows the average OMB review for rules promulgated by the DOL is 117 days – for rules far less controversial. “Anything shorter than that could raise serious questions about the review process," Lewis said.
The OMB process and the comment period would likely move the effective date of any new rule into mid-2016 or even later. One lobbyist said last week that the Obama administration is working to complete work on controversial regulatory initiatives before it leaves office at the end of 2016.
The DOL has maintained a “no comment” policy on the new rule. Phyllis Borzi, the assistant Secretary of Labor who oversees the Employee Benefits Security Administration, led the administration’s earlier efforts to impose a new standard in 2010 and 2011, but has recently declined all public comment.
However, in comments at a recent meeting of the Investment Management Consultants Association (IMCA) in Seattle, she said that the DOL and SEC are working together closely to coordinate their efforts on the issue.
During the discussion, according to published reports, Borzi also mentioned one avenue for potential legal challenge of a rule imposing a new fiduciary standard by the DOL.
She said during the IMCA panel discussion that, “The SEC regulates securities. We regulate retirement products,” she said, noting that many retirement products are not securities.
At the same time, legislation was introduced last week in the House that would require the DOL to wait for the SEC to act before imposing a new standard of care on agents and advisors for sale of investment products in retirement accounts.
The legislation is, “The Retail Investor Protection Act.” It was introduced by Rep. Ann Wagner, R-Missouri.
Besides requiring any DOL rule to await SEC action, the SEC would be required under the Wagner to legislation to look into potential issues with a rule making establishing a uniform fiduciary standard in regards to investor harm and access to financial products that were not adequately addressed in the agency’s 2011 study.
Finally, the SEC would be required to look into other alternatives outside of a uniform fiduciary standard which could help with issues of investor confusion, Wagner said.
Wagner introduced similar legislation last year. It passed the House, but failed to win support in the Senate.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
© Entire contents copyright 2015 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News