Mixed expectations for impending DOL fiduciary rule

The Department of Labor stayed silent Wednesday on a new fiduciary rule rewrite it promised to unveil by the end of August.

Now termed "Conflict of Interest in Investment Advice," the much-delayed rule proposal remained docked in the "Proposed Rule Stage." Anticipation remains sky high for financial professionals, not all of whom are opposed to tighter regulations.

Evan Tunis, president of Florida Healthcare Insurance, has been a licensed health insurance broker for 20 years. He favors a leveling of the playing field.

"We need to make sure that advisors, brokers and insurance agents are held accountable for their advice when it comes to investments," he said. "It's essential that investors have a clear understanding of any potential conflicts of interest so they can make informed decisions."

But most financial professionals in the life insurance and annuity world remain opposed to extending the fiduciary duty any further. In fact, lawsuits are a likely result if the DOL attempts to do that in any meaningful way.

The industry will be looking to see whether the new rule encompasses something new or is outside the scope of rules already being enforced by a number of agencies, said Ryan D. Brown, partner and attorney at the financial planning firm CR Myers & Associates, headquartered in Southfield, Mich.

"Between the SEC, FINRA, the NAIC, individual states and the DOL, financial professionals must provide advice that is entwined among a five-actor regulatory pentagon," Brown noted, "so any proposed Conflict of Interest Rule would likely incorporate regulations that are already being abided by."

Tarek El Ali is the founder of Smart Insurance Agents, a Chicago-based agency. "Transparency in disclosing conflicts of interest and compensation" is likely going to be a big concern for the industry, he said.

Much has changed since the first fiduciary rule was published and briefly in place in 20016, he added.

"Given changes since 2016, adaptability to the current financial landscape is crucial, and stakeholders could emphasize the importance of clarity, enforcement, and balanced regulation that doesn't stifle industry innovation," El Ali said.

Su still in limbo

During a June industry conference, Brad Campbell, partner at Faegre Drinker Biddle & Reath, was part of a panel discussion on annuity regulation and doubted the DOL could finish the fiduciary rewrite by Labor Day.

"I don't think they can do it that quickly," Campbell said.

The difficulty getting Julie Su confirmed to head the Labor Department is one of the main reasons Campbell cited. Publishing a major rule while the department remained leaderless is unlikely, he said then.

Su was named acting secretary of labor on March 11, following the departure of incumbent Marty Walsh from the role. While President Joe Biden officially nominated Su to be his permanent secretary of labor, her nomination drew criticism from both sides of the aisle and remains in limbo.

A long road

The DOL began discussing a wide-ranging fiduciary standard more than a decade ago. Since then, there have been many twists and turns along the way. They include:

• In 2016, the Obama administration published a fiduciary rule that required a best interest contract exemption to sell fixed indexed annuities. The industry responded with several lawsuits.
• In 2018, the Fifth Circuit Court of Appeals struck down the fiduciary rule.
• The replacement investment advice rule was created by the Trump DOL and allowed to take effect by the Biden White House. It created a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and reinstated the "five-part test" to determine what constitutes investment advice.
• Upon taking effect in February 2022, the rule was immediately sued in Texas by the Federation of Americans for Consumer Choice, and in Florida by the American Securities Association. Judge Virginia M. Hernandez Covington sided with the ASA in striking down a portion of guidance the DOL issued in 2021 that expanded the definition of a retirement plan fiduciary.

There are other details, but those are the main highlights that bring us to the present effort. Analysts such as Campbell say the Labor Department is likely taking an extra-long look at every aspect of the rule changes it is making. Many anticipate legal action once the rule is finally published.

The industry just wants fair rules, Brown said, and honest financial professionals have no issues with genuine conflicts.

"The industry will not shy away from the notion of mitigating bona fide conflicts of interest," he explained. "Instead, the issue will be what the government deems as 'conflicts.' The government requiring disclosure will neither dissuade nor prohibit incentive. Rather, disclosure and transparency will ensure that retail consumers make rational decisions for their financial and retirement planning objectives."

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.

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