Fiduciary

OMB completes review of Labor Department’s polarizing fiduciary rule

The DOL is asking a court to vacate its controversial Retirement Security Rule.

By John Hilton

The White House Office of Management and Budget announced that it has concluded a review of the Department of Labor’s controversial fiduciary rule.

The review is the final big hurdle before the rule is published in the Federal Register. OMB is still scheduled to meet with stakeholder groups through April 15, but the agency indicated on its website that its official review completed Wednesday.

Released on Halloween, the DOL fiduciary proposal is the agency's fourth attempt at extending fiduciary duty to nearly all transactions involving retirement dollars. In 2018, a federal appeals court threw out the Obama administration's fiduciary rule. A three-judge panel ruled 2-1 that it went beyond the DOL's mandate from Congress to regulate workplace retirement plans.

The 2018 court decision examined the common law meaning of the word “fiduciary,” which requires a relationship of trust and confidence, and determined that Congress codified that common law meaning in the statutory text.

Industry trade associations are expected again to challenge the new rule in court.

'Unnecessary' fiduciary rule

National Association of Insurance and Financial Advisors CEO Kevin Mayeux was among those invited to meet with OMB and submit testimony. The rule is "unnecessary and likely to harm low- and middle-income consumers by limiting their access to professional financial services," Mayeux told OMB, NAIFA said in a news release.

"If finalized, the Proposed Rule will again force financial professionals to move away from brokerage services into a fee-for-service model that is tailored to higher-income clients," Mayeux said. "This model simply does not work when a year-round fiduciary duty is imposed."

The regulatory landscape has changed significantly to provide greater protections to consumers since the Fifth Circuit struck down the DOL’s fiduciary rule in 2018, Mayeux noted. Since then, the Securities and Exchange Commission established Regulation Best Interest covering broker-dealers and registered representatives.

Additionally, 45 states have enacted a best-interest standard for annuity transactions based on the National Association of Insurance Commissioners model regulation.

Seventy percent of NAIFA members do not have a minimum asset requirement for service, according to a recent survey of NAIFA members, and only 13 percent of respondents require a minimum asset threshold of $50,000.

If the Proposed Rule is finalized, that number will jump to 47 percent of respondents who will have to impose a minimum threshold exceeding $50,000, Mayeux said.

“The 2016 Fiduciary Rule made the brokerage model so expensive and risky that many of our members could no longer serve small accounts,” he added.

InsuranceNewsNet Senior Editor John Hilton 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.

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.