Bush Appointee Blasts DOL Investment Advice Rule Guidance

Bradford P. Campbell, who headed up the Employee Benefits Security Administration under President George W. Bush, was sharply critical today of the new investment advice rule from the Labor Department.

The rule would replace the controversial fiduciary rule published by the Obama administration. The Trump replacement has two main parts: a new exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

The former exemption is out for public comment until Aug. 6. The latter "five-part test" change came via a new "sub-regulatory guidance" that Campbell criticized as "misguided."

Among other things, the guidance reverses the longstanding DOL definition of "regular basis" in the context of providing financial advice.

"They were very unclear as to exactly what types of recommendations, advice, services on an ongoing basis might be fiduciary and which might not," Campbell explained during a webcast today. "So it calls into question the notion of if I have an ongoing relationship, but it's a sales relationship, is it now converted to a fiduciary one?"

Campbell, a partner at Faegre Drinker Biddle & Reath, went on to note that the Trump administration specifically issued an executive order in late 2019 to prevent agencies from using guidance orders to essentially change the rules.

"This is a substantive change," Campbell said. "I don’t personally view this as a topic that is appropriate for a sub-regulatory guidance."

'The Gray Area'

Campbell stressed that the DOL attempted to make it clear that a one-time sale of, for example, an annuity to a retiree, is specifically not going to meet the requirements for ongoing advice and fiduciary status.

But Fred Reish, also a partner at Faegre Drinker, noted that even a one-time annuity sale might involve some ongoing communication and questions about the index or the methodology.

"Some cases will be pretty clear, one way or the other way, but there's also going to be cases that fall in the gray area," Reish said. "And we're just going to have to live with that one for a while."

A DOL investment advice rule to better protect seniors and retirement savers was first pondered during the Bush administration. The Obama administration finally settled on its rules in 2016, a much-tougher regulation that required a special exemption to sell variable annuities and fixed indexed annuities and exposed agents to liability.

The current iteration of the investment advice rules bears the stamp of Secretary of Labor Eugene Scalia, who was the lead attorney on a lawsuit that eventually succeeded in overturning the Obama rules on appeal.

In the end, if nothing changes, the current rule could end up putting advisors in a better place, Campbell said.

"This is more flexible than the last time we got involved with DOL," he said. "There's no mandatory contract. There's no mandatory class exemption, no class-action lawsuits as a result of those contracts. So some of the concerns that we had with the best interest contract exemption -- this sort of fills the similar role, but it does it without a lot of that other baggage that caused so many concerns."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.