DOL Issues Investment Advice Rule; Will Biden Let It Stand?

The financial services world is dissecting the Department of Labor investment advice rule this morning after the agency formally published the final version late Tuesday.

The Trump administration replacement rule has two main parts: a new prohibited transaction 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 a successor rule to the unpopular fiduciary rule published by the Obama administration, which was later tossed out by a federal appeals court. The Trump rule can be withdrawn by the incoming Biden administration, but it carries the force of law 60 days after its publication on Tuesday.

"Consumers deserve to know the best interest protections will be in place and that access for lower- and middle-income savers is safeguarded," said Jim Szostek, vice president and deputy, taxes, and retirement security for the American Council of Life Insurers. "The best interest standard makes sure that opportunity isn’t taken away — either inadvertently or with intent — by a fiduciary-only approach that shuts out the middle market from gaining a stronger financial footing."

The tentative version did not please the industry, which said the rule created additional problems of who can be considered a fiduciary, or consumer representatives. The final version is better, the Insured Retirement Institute said.

The trade association is "encouraged by several positive changes" made to the conditions of the prohibited transaction exemption. The final rule includes an adjustment to record-keeping requirements to allow only the DOL and the Treasury Department to obtain access to a financial institution’s records, IRI said.

Another change from the original proposal allows a senior executive officer to sign a retrospective compliance review instead of the chief operating officer.

A third change extends the exemption to allow financial institutions to engage in principal transactions with retirement plans and Individual Retirement Accounts (IRA) in which the financial institution purchases or sells certain investments from its own account.

'Several Positive Changes'

IRI pointed out that the final rule places enforcement authority with DOL regulators and not through a private right of action, the most important change from the Obama-era rule.

“The rule contains several positive changes that can help to ensure consumers will continue to access the financial products and services they need to achieve retirement goals,” said Jason Berkowitz, IRI chief legal and regulatory affairs officer. “We appreciate that the final exemption in the rule aligns with a best interest standard similar to the U.S. Securities and Exchange Commission’s Regulation Best Interest and the National Association of Insurance Commissioner’s model best interest regulation that states have begun to adopt.”

Any rules published in the final 60 days of an administration, known as "midnight regulations," can be rescinded by the incoming administration.

While President-elect Joe Biden and his team are likely to have much higher priorities, the Democratic platform released over the summer vowed to reverse Trump administration rules on investment advice.

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.

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.