The Department of Labor has one week to publish its investment advice rule to avoid a quick hook by the incoming Joe Biden administration.
W. Mark Smith, partner at the law firm Eversheds Sutherland, said it is "unlikely" that the rule will be published by next weekend. Any rules published in the final 60 days of an administration, known as "midnight regulations," can be rescinded by the incoming administration.
"Almost certainly if the Trump administration proceeds, it will be after November 20 and they’re exposed to the midnight regulation protocol," Smith said.
The investment advice rule was released this summer, accompanied by a shortened 30-day comment period. The investment advice rule would replace the controversial 2016 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.
No Fiduciary Rule
One thing the Biden administration cannot do is revive the Obama-era fiduciary rule, Smith noted. Key parts of that rule were struck down by the Fifth Circuit Court of Appeals in 2018.
"Almost certainly any new initiative in the Biden administration would relate to the terms of conflict of interest relief for financial service providers," he explained.
The Democratic platform provided another clue on possible direction for a Biden Department of Labor, he added.
“Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first,” the platform stated in a section titled “Guaranteeing a Secure and Dignified Retirement.”
“We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing,” the document also stated.
A LIMRA webinar last month discussed two ways opponents could get rid of the DOL investment advice rule, should it be published.
Barbara Roper, director of investor protection for the Consumer Federation of America, expected the DOL rule to be published by now. Roper, who testified in writing and during a public hearing, said the rule allows for conflicted investment advice and gives most rollover recommendations a “regulatory free pass."
In an email to InsuranceNewsNet, Roper said she expects a Biden administration will want to clarify the definition of fiduciary investment advice and the "problematic" five-part test.
"I feel pretty confident that the Biden Administration will want to go back to the drawing board on closing those loopholes," she wrote. "In particular, I think they will want to ensure that rollovers are consistently treated as fiduciary investment advice."
Likewise, Roper anticipates the Biden team will support standards that are "more rigorous than the current proposal in reining in the most problematic conflicts of interest."
Regulators across agencies attempted to rewrite rules to provide a consistent regime from the DOL to the Securities and Exchange Commission to state insurance departments. A "best-interest standard" underpins rules and regulations published over the past few years.
Roper said her organization will lobby the SEC to strengthen conflict of interest rules in its Regulation Best Interest.
"So you could still see a harmonized approach, but with the bar set at a higher level," she wrote.
Otherwise, Roper said the Fifth Circuit decision should not necessarily prevent the Biden administration from pursuing tough rules.
"After all, the 5th Circuit decision was an outlier, wrong on the facts and wrong on the law," she wrote.
The CFA supports sweeping rules to cut "across product lines" to better protect individual retirement accounts, she added.
"The weak regulation that applies to insurance recommendations is problematic enough, but when it comes to gold and bitcoin, there’s no oversight at all," Roper wrote. "Based on the emails that regularly pop up in my inbox, that’s a problem that is crying out to be solved."
Who Will Be Labor Secretary?
Who Biden tabs as labor secretary and who fills the undersecretary slot for the Employee Benefits Security Administration will be key to any changes to the investment advice rule, Smith said.
The Trump administration was more involved in the process than is normally the case, he added. Still, things got off to a rocky start after Trump's original nominee, Andy Puzder, struggled to gain support amid several controversies.
Puzder eventually withdrew from consideration on the eve of his confirmation hearing, Feb. 17, 2017. The delays -- Alexander Acosta was finally confirmed as Trump's labor secretary on April 28, 2017 -- knocked the administration off-track in its bid to stop the fiduciary rule from taking effect.
A smoother confirmation process is crucial if Biden is to successfully remake the current DOL rule proposal, Smith said. Based on an exchange earlier today, it doesn't sound like liberal Sen. Bernie Sanders, I-Vt., would be an option to join the Biden administration in this role:
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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