Deadline passes with over 19k comments on DOL fiduciary rule proposal

The image shows the Department of Labor building and the words, "DOL Rule Comment Period Ends." — The DOL comment period on its controversial fiduciary rule ended Tuesday.

By John Hilton

The Department of Labor wrapped up a relatively quick comment period Tuesday on its controversial fiduciary rule.

Despite the department twice denying an extension of the comment period, supporters and opponents still managed to flood the DOL inbox with more than 19,000 comments. Trade associations are generally circumspect about potential legal challenges.

Not this time. Perhaps emboldened by a 2018 federal appeals court decision tossing out the 2016 fiduciary rule, opponents openly addressed future lawsuits against the current version.

"This version will not survive judicial scrutiny," wrote the Securities Industry and Financial Markets Association, a trade group representing securities firms, banks, and asset management companies.

Simply put, the new "Definition of an Investment Advice Fiduciary" proposal would virtually make any rollover recommendation from an retirement plan a fiduciary recommendation.

"It is clear from this proposal that the Department intends to turn many ordinary communications between individuals into ERISA fiduciary conversations," the SIFMA letter continued. "The Department is using a one-size-fits-all approach which was never the intent of Congress when providing the Department with the ability to issue exemptions."

So far, the DOL published just 95 comments, most of them requests to speak during the Dec. 12-13 public hearing. The next several weeks, or months, will likely be quiet while the DOL finalizes the rule. It could be published as early as late winter or early spring, experts have said.

Variety of fiduciary rule comments

It's not only opponents who commented on the new fiduciary definition. The DOL also has fans of its work, specifically, among consumer advocates and some financial professionals who work in the fiduciary advisor space.

"Despite their legal claims to the contrary, market participants function as advice providers in positions of trust and confidence with the retirement savers they serve," wrote Micah Hauptman, director of investor protection for the Consumer Federation of America "The proposed redefinition appropriately captures the types of relationships and interactions that retirement savers reasonably view as advisory in nature."

But among the annuity and retirement product focused trade associations, opposition is fierce. There is widespread feeling that the fiduciary rewrite will deeply impact industry sales models, not to mention add substantial compliance costs.

Several comment letters called on the DOL to withdraw the proposal immediately.

The proposal “incorporates many of the same inappropriately expansive and overly broad concepts as were included in the Department’s 2016 regulation that was vacated by the Fifth Circuit as inconsistent with the statutory text of ERISA," wrote American Council of Life Insurers' executives James Szostek and Howard Bard.

The fiduciary proposal will certainly lead to more merger-and-acquisition activity, the Institute for Portfolio Alternatives wrote, which isn't a good thing for investors. "Hire me" conversations would be jeopardized as well, the trade group added.

"Plan fiduciaries and retirement savers expect and benefit from candor when they interview financial professionals, diligence funds, and submit requests for proposals," the IPA letter reads. "If final regulations do not clearly exclude such interactions from triggering fiduciary status, financial professionals will be forced to fall back on legalese and opaque responses if they want to be able to present their services to plan fiduciaries."

No fixes will work

There are no modifications that will make the rule work for its members, said the Insured Retirement Institute.

"We are not requesting, recommending, or proposing modifications to any of the components of the proposal,” said President and CEO Wayne Chopus. “We do not believe the proposal can or should be ‘fixed,’ and nothing in this letter should be read to suggest or imply that IRI would support a modified version."

The National Association of Insurance and Financial Advisors divided its comment letter into six points, some of which will likely reappear in legal challenges.

• The proposed definition of fiduciary investment advice is an inappropriate standard.
• The proposed rule will harm low- and middle-income savers.
• The proposed rule treats compensation for independent agents differently.
• PTE 84-24 is inconsistent with the principles of state-based insurance regulation.
• The proposed rule excludes independent marketing organizations from PTE 2020-02.
• Modifying the existing regulatory structure is unnecessary.

NAIFA suggested that the Labor Department keep in mind the retirement security goals outlined in the SECURE Act legislation passed by Congress. The 2019 SECURE Act and its follow-up, SECURE 2.0, passed in 2022, were responsible for significant changes to retirement plans, access to annuities and related things like required minimum distributions.

"The Proposed Rule threatens low- and middle-income workers' ability to utilize the SECURE Act and SECURE 2.0 Act’s provisions due to being forced out of the market for professional financial services,” wrote NAIFA 2023 President Bryon Holz.

InsuranceNewsNet Senior Editor John Hilton 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.

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.