Department of Labor officials are proceeding with a quick timeline for its reworked rule to regulate investment advice to workers and retirees.
Meanwhile, critics claim the DOL is departing from precedent in a bid to push the reworked former fiduciary rule through quickly. Legislators and consumer advocates seek both a longer comment period and a public hearing.
As it stands, no hearing is planned and comments are due by Aug. 6. To comment, visit Regulations.gov and search for "Improving Investment Advice for Workers & Retirees," or click here.
As of the close of business Monday, the Employee Benefits Security Administration reported 12 comments had been received. None have been posted as of Tuesday.
The key to the new rules is a prohibited transaction exemption for which the DOL is specifically soliciting comments. It allows “investment advice fiduciaries” to engage in certain transactions that would otherwise be prohibited, to the extent certain requirements are satisfied.
“This rule says if you are a fiduciary, you can engage in a lot of self-dealing and conflicted compensation that is currently not allowed as a fiduciary in selling products and engaging in rollover advice,” explained Jamie Hopkins, a finance professor of practice at Creighton University. “In essence, the DOL is acknowledging a standard only to build an exception from having to adhere to it.”
The DOL rule also restores the original “investment advice” regulation and its five-part test for defining an investment-advice fiduciary. These rules date to 1975. But it’s the new PTE that the industry is buzzing about.
In order for investment advice fiduciaries to rely on the proposed class exemption, the law firm Carlton Fields noted, they must satisfy the “impartial conduct standards” set forth in the exemption, which include three components:
• A best interest standard;
• A reasonable compensation standard; and
• A requirement to make no materially misleading statements about recommended investment transactions and other relevant matters.
Satisfying the best interest definition requires the advisor to act with “prudence” and “loyalty,” terms that have been identified under the Employee Retirement Income Security Act of 1974.
The proposed investment advice rules are being criticized on both sides -- from registered advisors as well as consumer advocates and left-leaning lawmakers.
A pair of high-profile letters ask the DOL for more time and more opportunity to comment on the rule proposal. One letter signed by nearly two dozen liberal, union and consumer groups calls the 30-day comment period "not a reasonable amount of time."
A DOL investment advice rule to better protect seniors and retirement savers was first pondered during the Bush administration. The Obama administration put forth the first rules, a much-tougher regulation that required a special exemption to sell variable annuities and exposed agents to liability.
Given the lengthy history behind the investment advice rules, to move quickly suggests the DOL "is not keeping an open mind, and has predetermined the outcome of this rulemaking," the group letter reads.
A second letter was sent by Sen. Patty Murray, D-Wash. Ranking member of the Senate Health Education Labor and Pensions Committee, Murray wants the DOL to extend the comment period and hold a hearing on the proposal.
"The DOL owes it to the public to take the time to meaningfully engage with people about their concerns rather than rushing through a rule that would seriously damage the retirement security of people across the country," the letter reads. "During the middle of a pandemic, when people across the country are grappling with severe economic and health challenges, it is as important as ever for the DOL not to arbitrarily and unfairly rush through this process."
A DOL spokesman confirmed that the agency received Murray’s letter and is reviewing it.
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.
© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.