If you did not comment on the Department of Labor's advice rule before the 30-day comment period closed, you lost your chance because the department refused to extend the period.
And judging by the 105 comments that did make the deadline on Thursday, not very many people like the latest version of the rule, which was designed to replace a controversial Obama-era regulation.
The Trump replacement rule 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.
It is the third rule put forth by the DOL. Under Obama, a 2010 rule was pulled following the public comment period after vehement opposition. The DOL returned with a new fiduciary rule in 2015 and the ensuing comment period, which was reopened at one point, generated 3,134 comments. That rule was later tossed out by a federal appeals court.
The new investment advice rule has come under fire from industry analysts for vague language and the confusion it could create. Meanwhile, consumer groups say the rule opens the door for industry sales abuses.
While comments were supposed to be limited to the exemption, many letters pointed out issues in other areas. Others ripped the 30-day comment period and too short to credibly assess the rule impact.
Last week, the DOL rejected calls for a longer comment period.
Criticism generally fell into those three categories: confusing language, not enough comment time and the rule doesn't protect investors. Here is a sampling of comments on all three issues:
Many critics are taking aim at this language change in the DOL's new interpretation of the five-part test: “advice to roll over Plan assets can occur as part of an ongoing relationship or an anticipated ongoing relationship that an individual enjoys with his or her advice provider.”
The DOL goes on to say that “advice to roll assets out of the Plan into an IRA where the advice provider will be regularly giving financial advice regarding the IRA in the course of a more lengthy financial relationship would be the start of an advice relationship that satisfies the ‘regular basis’ requirement. In these scenarios, there is advice to the Plan - meaning the Plan participant or beneficiary - on a regular basis.”
Many comments addressed this language, essentially redefining "regular basis."
Morgan Stanley: "We believe that this is an overly broad interpretation and will result in investor confusion and reduction of investor choice. We believe it would be highly unlikely for the parties to be in a 'relationship of trust and confidence' when the financial institution and professional are in a sales relationship with the investor and are trying to encourage the investor to hire them."
Gradient Insurance Brokerage: "Many insurance agents meet with their clients periodically to review features of their product, like their policy allocations and rider features. Based on the proposed rule and the Department’s commentary, it is unclear if common activities by insurance agents, like annual policy reviews, will give rise to a relationship that meets the 'regular basis' prong."
Other comment letters pointed out that the DOL language includes inconsistencies with the 2016 appeals court decision striking down the Obama fiduciary rule. Specifically, in the rule preamble, the DOL wording does not clearly state that fiduciary status is triggered when a fee is paid for investment advice rendered. Instead, the vague wording could leave more advisors vulnerable, commenters said.
American Council of Life Insurers: "Sales recommendations in which a commission is paid only when there is an investment transaction must not be viewed the same as investment advice under a relationship in which compensation is paid regardless of whether the advice leads to an investment transaction."
Comment Period Too Short
The DOL's 30-day comment period is inconsistent with past practices. In 2015, the DOL initially set a 75-day comment period, then extended it by 15 days. Any delays in the current rule would make it difficult for the Trump administration to publish a final rule in the Federal Register by the end of the president's term.
Comment letters were vocal about the need for more time to dissect the impact of the proposal:
Ron A. Rhoades, CFP: "A 30-day comment period is an unreasonably short amount of time for this significant rulemaking, involving a significant impact upon the potential liability of U.S. corporations who serve as plan sponsors, the tens of millions of participants in such plans and their need for retirement security, and the economic impact on capital formation and the growth of the U.S. economy."
Some comment letters noted that the DOL also collected comments simultaneously on another significant rule, on ESG investing in retirement plans, which further reduced the focus on its investment rule. Others requested a public hearing be held.
AARP: "The issues presented by this proposed Class Exemption are extremely important and, in accordance with section 408(a) of ERISA, the Secretary must afford an opportunity for a hearing before any exemption from section 406(a) and self-dealing is granted."
Investors Not Protected
Registered investment advisors joined consumer groups in criticizing what they view as a laxity in the rule itself. Simply stated, this faction does not feel the rule does much to protect consumers, especially those unsophisticated in money and finance.
Feinberg, Jackson, Worthman & Wasow: "By limiting the entities and individuals who would be considered fiduciaries, exempting those that meet that narrowed fiduciary definition, and providing little in the way of protections, the Department has fashioned a classic 'heads, I win; tails, you lose' scenario for retirement investors and ERISA participants."
Many comment letters focused on the lack of an enforcement mechanism. The Obama fiduciary rule included a private right of action that created substantial liability for the advisors and financial institutions. That is not included in the new rule.
Consumer Federation of America: "Nothing could more clearly illustrate the extent to which this rule is designed to protect financial firms from accountability rather than retirement savers from financial harm than the thoroughness with which the Department has stripped the rule of any such enforcement mechanisms."
'Choice And Access'
Not all of the comments were critical. A letter from the Republican members of the House Committee on Education and Labor applauded the DOL for promoting "consumer choice and access to retirement advice.
"We urge swift implementation of a final class exemption," read the letter, signed by two of the GOP's 21 members on the committee.
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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