Top executives at the U.S. Chamber of Commerce were among those to share their concerns about the DOL’s upcoming re-release of its fiduciary rule with Labor Secretary Thomas Perez and National Economic Council Director Jeffrey Zients.
In a letter last week, two chamber leaders highlighted concerns with the DOL's reliance on prohibited transaction exemptions to “mold” the definition of fiduciary under the Employee Retirement Income Security Act, as well as the DOL’s attempts to regulate rollovers.
The players in the debate over the rule have been waiting for the DOL to send it to the Office of Management and Budget for analysis since late January.
David Hirschmann, president of the Chamber’s Center for Capital Markets Employee Benefits Competiveness, and Randel Johnson, senior vice president of Labor Immigration and Benefits, say they “are troubled by the possibility of a rule with an overly broad application and significant reliance upon administrative prohibited transaction exemptions,” or PTEs, to shape a revamped fiduciary definition, according to the letter.
Under this approach, they continue, “everything is prohibited unless DOL specifically allows it. Almost by definition, this will create a rigid one-size-fits-all regulatory approach that will make it harder to serve current investors, particularly in smaller accounts.”
The two chamber executives also wrote that DOL’s efforts to use administrative PTEs “to ‘shape’ the definition of a fiduciary will unnecessarily complicate, and increase costs attendant to, the provision of much-needed services to plans and their participants, as well as to IRA beneficiaries.”
Investors as well as regulated service providers — and the DOL — would benefit if the agency were to first “issue an advanced notice of proposed rulemaking, including possible PTEs, before it proposes a rule,” the two wrote.
Historically, DOL has used administrative PTEs to address “very fact specific transactions with respect to which relief is often conditioned on accommodating a one-size-fits-all approach and/or business model to permissibly enter into the defined transaction,” the two chamber executives pointed out, adding that DOL will likely have to devote “significant resources to this process as PTEs often take several rounds of drafting to ensure that they are workable.”
What’s more, the two argued, even if the exemptions “effectively address concerns today, the market for financial products and services is continually evolving,” and such exemptive relief “that is sufficient today may well become obsolete constraining innovation in the marketplace.”
The two chamber execs also point out that retirement savers already are protected by “robust” rules issued by the Securities and Exchange Commission and Financial Industry Regulatory Authority, and that DOL’s efforts to put individual retirement accounts and rollovers under fiduciary advice would duplicate SEC and FINRA rules.
They note the SEC and FINRA have both made protecting retirement savings one of their examination priorities for 2015.
“The chamber believes that regulation of our financial markets is most effective when it both enables ample well-disclosed choices for investors and ensures adequate investor protections,” the two execs explained. “This is particularly true of retirement savings. We strongly believe no approach by DOL will successfully achieve both of these goals unless it is considered in the context of the broader regulatory and enforcement regimes impacting these services.”
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
