President Joe Biden's administration is likely to issue the final version of its most significant and controversial regulatory proposal relating to wealth management within the next three months.
Biden's Office of Management and Budget accepted the "Retirement Security Rule: Definition of an Investment Advice Fiduciary" proposal for review from the Department of Labor's Employee Benefits Security Administration, the agency disclosed last week. OMB — which oversees the performance and budgeting of all federal agencies — could send the proposal back for reconsideration, but "what's more likely is that they would approve the rulemaking for publication in the Federal Register," said Leo Rydzewski, general counsel of the CFP Board.
"OMB could complete that review in fewer than 90 days, but it's a maximum of 90 days," Rydzewski said in an interview. "We would expect that OMB would be able to complete its work in less than 90 days, but we can't be sure of the specific timeframe."
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Labor's rule proposal would apply the fiduciary duty requiring recommendations to 401(k) plan participants and other retirement savers for rollovers and annuity sales to be in their best interest. The CFP Board — the ethical standards and certification organization of nearly 99,000 certified financial planners — has joined the National Association of Personal Financial Advisors, the AARP and consumer groups in support of the proposal. This week the CFP Board released a survey suggesting the vast majority of retirement investors also back the idea.
Opponents include trade and advocacy groups such as the Insured Retirement Institute, the National Association of Insurance and Financial Advisors, the U.S. Chamber of Commerce and the Financial Services Institute. The latter organization, which represents independent brokerages and advisors, released its own survey earlier this year finding that the rule could cost the industry up to $2.5 billion a year in new compliance expenses and generate about 120 million "pieces of paper" annually. The proposal's detractors argue that the higher regulatory burdens would reduce access to advice for many retirement savers.
Representatives from those four organizations and other groups that are against the proposal met with OMB and Labor officials to discuss it prior to the release of the initial version in late October, according to records that are part of the federal regulatory database. They submitted comments and testified at Labor's public hearing about the proposal in recent months as well.
"IRI is dismayed that the administration has decided to move forward with its fiduciary investment advice rule despite the evidence presented to DOL about the significant, unnecessary harm this rule will cause to retirement savers and concerns raised by members of Congress from both sides of the aisle," CEO Wayne Chopus said in a statement.
"If the final rule is substantially similar to the proposed version, millions of consumers would lose access to valuable lifetime income products and affordable professional guidance to help them knowledgeably acquire and use those products," Chopus continued. "Throughout this rulemaking process, DOL refused to acknowledge that its proposal will harm consumers. The proposal is functionally equivalent to the now-vacated 2016 rule, and like that rule, it will significantly harm retirement savers, especially lower- and middle-income workers, and further exacerbate the wealth gap for Black and Latino families."
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The survey commissioned by the CFP Board and conducted in the first half of February by the Center for Economic and Social Research at the University of Southern California offered a different picture, though. In an online poll of 736 U.S. households that had worked with a financial professional, many indicated that they thought fiduciary consumer protections like those in the proposal are already in place, or should be:
- 92% answered "yes" to this statement: "I understood that the financial professional who recommended that I move my funds out of a workplace retirement savings program into an IRA or an annuity was required to make that recommendation in my best interest."
- 92% said they strongly agree with this statement: "Financial professionals who provide recommendations or other advice about retirement investments should be required to act in their clients' best interest." Another 7% chose "somewhat agree."
- 86% checked "strongly agree" in response to this statement: "Financial professionals who provide one-time recommendations or other one-time advice about retirement investments should be required to act in their client's best interest." 11% said they "somewhat" agreed with the statement.
- And 64% who received rollover advice from a financial professional picked "yes" in response to this statement: "I expected that the financial professional who provided recommendations or other advice would do so as a fiduciary." At least 31% of other respondents said they were unsure.
The Securities and Exchange Commission's Regulation Best Interest and CFP Board standards expanding the fiduciary duty to every form of advice have given the industry, regulators and consumers nearly four years to see how those changes affected access to investment services, Rydzewski noted. Those two examples display "what happens after ethical standards are elevated," he said.
"CFP professionals did not turn away clients as a result of those changes," Rydzewski said. "Everyday Americans will get the same access to best-interest advice that wealthy Americans receive."
Issuance of the final version of Labor's retirement advice rule will trigger at least one more form of review by Congress under the Congressional Review Act, as well as a potential lawsuit by trade groups that will almost certainly seek to block the regulation through a court case but must wait for the rule to be released before filing the litigation. Most experts predict that the agency will issue the final rule in the second or third quarter, while noting that this year's presidential election will likely determine the proposal's ultimate fate.
