DOL Sends Investment Advice Rule To OMB, But It Might Be Too Late

Although President-elect Joe Biden will exert considerable influence over the Securities and Exchange Commission, the agency’s Regulation Best Interest is probably not going anywhere. At least not right away, say industry officials.

The Department of Labor has one week to publish its investment advice rule to avoid a quick hook by the incoming Joe Biden administration. Any rules published in the final 60 days of an administration, known as “midnight regulations,” can be rescinded by the incoming administration.

The Department of Labor could publish a final version of its investment advice rule any day now — but the 10-year regulation saga is far from over. Even is President Donald Trump wins a second term, DOL rule opponents, of which there are many, still have avenues to kill the regulation. Here are two.

Although partisan rule reversals are common in the federal government, the SEC generally observes a different sense of decorum, one leading expert says. However, a Biden administration might have other tools at its disposal to toughen up RegBI.

The problem for the DOL is one of time. There might not be enough of it to do a major rewrite, and all of the analysis and legal testing that goes along with that. Ideally, the agency would need to publish its final rule by Nov. 1 at the latest, a former DOL official said Wednesday.

The Department of Labor’s newest version of the investment advice rule requires a financial institution to be liable if a sale involves trail commissions. But insurance marketers are not considered financial institutions and life insurance companies don’t want to be responsible for independent insurance agents that they don’t control.

Historically, buyouts have not been offered policyholders facing a rate increase, said Jan Graeber, senior actuary with the American Council of Life Insurers. LTCi rate increases have been a sore spot for longtime policyholders, while carriers say there is little they can do to avoid them.

The rule would replace the controversial 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.

The Department of Labor was urged this morning to create a safe harbor to protect plan sponsors from having to “scrutinize” and “second guess” rollover communications. The comments came during a public hearing on the DOL’s investment advice rule proposal.