Labor Department proposal kicks off industry's next fiduciary fight

October 31, 2023 4:18 PM

A new version of the Department of Labor fiduciary rule that the agency is calling the "retirement security rule" is setting up the industry's next big regulatory debate.

President Joe Biden's administration proposed the new rule from the Department of Labor's Employee Benefits Security Administration on Oct. 31. The rule aims to protect consumers from "junk fees" that, the administration said, amount to conflicts of interest around investment advice given to retirement plan participants and savers that reduce yields, impose high costs and rack up commissions. Fact sheets and calculations released by the administration indicate that Americans lose as much as $5 billion per year to conflicted advice about fixed index annuities alone. The potential rule change, and that estimate, are likely to draw massive pushback.

The proposal came more than five years after an appeals court decision invalidated an Obama administration rule that the Labor Department says applied to nearly all recommendations to retirement investors. The agency said the new version is much narrower. In 2019, the Securities and Exchange Commission issued Regulation Best Interest during President Donald Trump's administration. The industry has largely praised that rule, while consumer advocates decried it as a watered-down version of the Obama regulation.

Scroll down the slideshow below to see the first reactions across the industry to the Labor Department's rule proposal. For a look at 24 other new rules and proposals to watch, click here. And, to view one trade group's criticism of the SEC's approach to rulemaking under Chair Gary Gensler, follow this link.

Acting Secretary of Labor Julie Su

"For too many workers, the road to lifelong financial security is unnecessarily paved with uncertainty," Su said in a statement. "This rule ensures that savers of all income levels can work confidently with investment professionals to grow their nest egg and prepare for the joyful retirement they deserve. America's workers and their families should not have excess fees and lost investment returns chipping away at their retirement savings due to the cost of conflicted investment advice."

Insured Retirement Institute CEO Wayne Chopus

"The rule will only increase retirement insecurity and result in millions of lower- and middle-income workers and retirement savers losing access to needed financial advice," Chopus said in a LinkedIn post. "Bidenomics is supposed to be about growing the economy from the bottom up and the middle out, but this proposal will drop the bottom out for millions of Americans struggling to achieve their retirement goals. IRI will fight this proposal just as we did with DOL's 2016 poorly concocted fiduciary rule that also masqueraded as consumer protection but instead caused extensive harm."

National Association of Insurance and Financial Advisors CEO Kevin Mayeux

"DOL's attempt to rebrand its proposal does not hide the fact that it is the offspring of the department's failed fiduciary-only model for advisory services that would limit consumers' choices and curtail the access of many middle- and lower-income investors to individualized advice and services," Mayeux said in a statement. "This is the fourth time since 2010 the federal government has tried to expand fiduciary requirements for advisors. This DOL proposal is particularly unfortunate, coming at a time when many Americans are concerned about their economic security and ability to prepare for retirement. NAIFA is particularly disappointed that DOL is trying to saddle advisors and consumers with an additional layer of regulations when the stated goals of the proposed rule are already being achieved by the Securities and Exchange Commission's Regulation Best Interest and state measures based on the National Association of Insurance Commissioners' model best interest regulation for annuity transactions, both of which provide robust consumer protections and require financial professionals to work in clients' best interests."

CFP Board

"CFP Board welcomes the U.S. Department of Labor's proposed retirement security rule intended to protect Americans from the harmful effects of conflicts of interest when financial professionals provide retirement investment advice," the board said in a statement. "It's time to update the nearly 50-year-old regulatory framework under the Employee Retirement Income Security Act of 1974 (ERISA) to prevent advisors from avoiding a fiduciary responsibility even when they are functioning as, and clients are relying on them as, trusted advisors. We celebrate the work of the advisors who seek to do what is best for their customers. However, the outdated law does not prevent advisors from taking advantage of gaps in the regulations to steer their clients into high-cost, substandard investments that pay the advisor well but eat away at retirement investors' nest eggs over time."

Public Investors Advocate Bar Association incoming President Joseph Peiffer

"Retirees deserve good advice enabling them to live a long and happy retirement, not advice that serves their broker's interest in making large commissions," Peiffer, the founding partner of Peiffer Wolf Carr Kane Conway & Wise said in a statement. "The DOL rule, which imposes a fiduciary duty on advisors, ensures that advisors will have to put retirees ahead of commissions."

Assistant Secretary for Employee Benefits Security Lisa Gomez

"Investment professionals routinely hold themselves out as giving expert advice based on the financial interest of the retirement investor, rather than the investment advice provider's financial interests," Gomez said in a statement. "This proposed rule would ensure that when investors entrust their retirement security to such investment professionals, their confidence will not be misplaced, regardless of the type of investment recommended. Workers and their families deserve no less."

Financial Services Institute CEO Dale Brown

"While we continue to diligently and thoroughly review and analyze the rule, we are concerned about its potential negative impact on Main Street Americans' access to financial advice as they save for retirement. The Department of Labor first pursued the fiduciary rule over a decade ago, and during this time, the regulatory standards and industry landscape have substantially evolved," Brown said in a statement. "Introducing more conflicting regulations would be unnecessary and could potentially hinder middle-class Americans' ability to achieve a financially secure retirement."

U.S. House Education and the Workforce Committee Chairwoman Virginia Foxx

"In the last two years, DOL has espoused at least three separate positions on what it means to be an investment advice fiduciary," Foxx, a Republican from North Carolina, said in a statement. "This latest proposal is just new lipstick on the same old pig, and it will harm retirement plans, retirees, and savers. DOL's proposal reaches well beyond its jurisdiction. Instead of regulating retirement plans, DOL is trying to regulate what individuals do with their own retirement savings. This kind of overreaching interference spells disaster. DOL has already proven it cannot handle its own investigations, which are endless and aimless, and now DOL wants to expand its jurisdiction illegally."

U.S. House Education and the Workforce Committee Ranking Member Bobby Scott

"Every hardworking American deserves access to a secure and dignified retirement," Scott, a Democrat from Virginia, said in a statement. "Unfortunately, workers today are left wondering whether the retirement investment advice they receive is in their best interest or the financial interest of their advisers. While most advisers put their retirement clients' interests first, unscrupulous retirement professionals continue to pad their own pockets by steering clients to high-fee investment products that produce lower returns for retirement savers. That is why I applaud President Biden and Acting Secretary Su for their efforts to end this insidious practice and make clear that all retirement advisers must put their clients' interests first. This proposal is expected to have a meaningful impact on workers' retirement savings."

The Save Our Retirement coalition

"The release of this rule is a major milestone in the long fight to bring millions of Americans one step closer to a secure, dignified retirement," AARP, AFL-CIO, AFSCME, Americans for Financial Reform, Better Markets, Center for American Progress, Consumer Federation of America, Economic Policy Institute and the Pension Rights Center said in a statement. "We look forward to reviewing this proposal in detail, submitting our comments, and working to help craft the strongest possible rule to ensure that retirement savers receive investment advice that is in their best interest, not the self-interest of the financial professionals they turn to for advice about their retirement investments. If the proposal is as strong as we have urged, this will prove to be a banner day for retirement savers."

Securities Industry and Financial Markets Association CEO Kenneth Bentsen

"Since the Department of Labor (DOL) first proposed a change to the definition of fiduciary, the landscape has changed greatly, most notably with the introduction of the Regulation Best Interest (Reg BI)," Bentsen said in a statement. "SIFMA long supported a best interest standard of care for brokers. That standard is now in place — it is robust and expansive with significant duties and obligations imposed on broker-dealers that unquestionably enhances investor protection. Upon initial review, we are concerned that the Department's newest proposal may go too far, inconsistent with existing federal regulations such as Reg BI and as a result could limit access to advice and education while also limiting investor choice in advisors."

National Association of Personal Financial Advisors

"The U.S. Department of Labor's proposed retirement security rule is a major step forward to update and strengthen the fiduciary standard of care for the millions of hard-working Americans with retirement plans," the organization said in a statement. "We commend the Department for taking this important step to protect retirement savers. NAPFA looks forward to reviewing the proposed retirement security rule, engaging a range of stakeholders to assess the rule's efficacy and providing our comments to the Department to help build a robust final rule that ensures hard-working Americans receive retirement investment advice that is in their best interest. We intend to focus our review on the additional protections for retirement savers that would be provided under ERISA and that would exceed those under the Securities and Exchange Commission's (SEC) Regulation Best Interest."