DOL issues final retirement advice rule, setting up potential court fight

Despite howls of industry protest ahead of an inevitable lawsuit, the Department of Labor issued the final version of its retirement advice rule for 401(k) rollovers and certain insurance sales.

The April 23 announcement from Labor's Employee Benefits Security Administration came more than six years after an industry legal challenge led to an appeals court decision that vacated the last Democratic presidential administration's attempt to expand the fiduciary duty to more areas of retirement and investment advice. Opponents contend that a new rule is unnecessary in light of the Securities and Exchange Commission's Regulation Best Interest and other consumer protections and that the agency rushed the regulation to the finish line without giving criticism due consideration. The rule's backers argue that it will close loopholes in retirement advice guidelines that cost savers billions of dollars in extra fees and lost investment yields every year.

"America's workers and their families rely on investment professionals for guidance as they save for retirement," Acting Secretary of Labor Julie Su said in a statement. "This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions."

READ MORE: 12 standout comments on the DOL retirement advice proposal

Labor's rule would apply guidelines requiring financial advisors and other retirement professionals to put clients' best interest first when making recommendations for 401(k) rollovers to individual retirement accounts and for some kinds of annuities, as well as in other services to workers building nest eggs that aren't currently covered by the fiduciary duty. 

The rule would go into effect on Sept. 23, which gives advisors and other industry professionals five months to prepare for the implementation. After receiving more than 19,000 comments and holding a public hearing on the proposal, Labor still faces the prospect of potential congressional pushback that could overturn the law with enough votes.  

Opponents among industry trade groups haven't stated explicitly that they will file a lawsuit, but they couldn't seek to vacate the rule in a court case until the issuance of the final guidelines. 

Last week, the Financial Services Institute, the Insured Retirement Institute, the American Securities Association, the National Association of Insurance and Financial Advisors and more than a half dozen other organizations and companies sent a letter to President Joe Biden's administration calling for more time for review of the rule and warning about its potential impact.

"The impact of the process failures will be felt by millions of low- and middle-income workers, especially those most impacted by the wealth gap, and it will deepen the anxiety and widespread retirement insecurity they now have," the letter said. "If the proposed rule is made final, it will make it nearly impossible to access the products and services they need to realize the benefits of the Secure Act and the Secure 2.0 Act, two laws that offer measures to strengthen and enhance retirement security and will allow millions more to achieve a secure and dignified retirement. For the sake of the regulatory process' integrity and to prevent and protect harm from accruing to millions of America's workers and retirees, we ask you to reconsider this rush to judgment and allow for further input and constructive dialogue before this rule is finalized."

READ MORE: Labor gets an earful: 25 key moments from retirement advice hearings

Labor's proposal has won support from the AARP, the AFL-CIO, the CFP Board, the National Association of Personal Financial Advisors and a slew of consumer groups, though. 

Since the debate about adding more fiduciary protections to retirement advice has "been around for a while," many firms have already taken steps to overhaul processes like rollovers by ensuring that advisors fill out documents describing the reasons for their recommendations to clients, according to Leila Shaver, the founder of My RIA Lawyer, a compliance firm that provides outsourced services and legal guidance to registered investment advisory firms.

"We've already implemented changes for all of our clients," Shaver said in an interview. "A lot of the heavy lifting should have already been done, so if you haven't done any of those things you're really setting yourself up for issues."