DOL Advice Rule Could Repeat Fiduciary Rule Errors: ACLI

By John Hilton

Comments close today on the Department of Labor's investment advice rule, with one leading trade group claiming the effort could have the same chilling effect as the Obama-era fiduciary rule.

Some language in the rule "could be understood to broadly impose fiduciary obligations in a manner similar to the Department’s 2016 fiduciary regulation," reads the comment letter from the American Council of Life Insurers.

In its lengthy letter, the ACLI outlines several cases of language and definitions in the rule that leave questions of how and when an advisor is providing advice and how that communication is further defined by the rule.

ACLI referenced the federal appeals court ruling overturning the Obama fiduciary rule several times in its comment letter.

"Before it was vacated by the Fifth Circuit Court of Appeals, this fiduciary-only approach restricted access to professional guidance that retirement savers with low and moderate balances want and need," ACLI wrote. "We have concerns that such consumer choice may be at risk again.”

Light Comment Numbers

Despite the criticism, the new DOL rule is expected to produce far fewer responses than past versions of the rule. The Federal Register reported just 37 comments as of Thursday afternoon, none of which were posted for public view.

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 rule in 2015 and the ensuing comment period, which was reopened at one point, generated 3,134 comments.

ACLI, which released its comments to the media, said it wants to further harmonize the proposed exemption with the Securities and Exchange Commission’s Regulation Best Interest and the National Association of Insurance Commissioners newly revised Suitability in Annuity Transactions Model Regulation.

A harmonized approach would "ensure all financial professionals act in the best interest of retirement savers while preserving consumer choice and access," the trade group said.

Language Confusing

Morningstar released its comment letter to the media earlier this week. In it, the analyst firm said that the DOL could go further to protect all investors receiving rollover advice in a variety of contexts. The DOL should revisit the “regular basis” prong of the five-part test to either eliminate this requirement or presume that it is satisfied in the context of a rollover.

Morningstar listed several other examples of unclear language in the rule that could cause problems.

Bradford P. Campbell, who headed up the Employee Benefits Security Administration under President George W. Bush, made his own critical remarks during a webinar last week, also taking issue with the "regular basis" definition.

"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. "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, 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."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.