Controversial new DOL fiduciary rule coming soon, as White House Office wraps up review

Since the White House Office of Management and Budget (OMB) finished its review of the new Department of Labor’s fiduciary rule April 10, the Biden Administration is expected to release the final rule in the coming weeks, possibly within a matter of days.

A letter from 55 House Democrats sent April 8 to the OMB from Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, urging them to expedite the review process, could possibly have helped to expedite the process.

The new rule is causing some controversy in the industry, as many groups say it is being rushed through. However, others say the changes could provide clarity for plan sponsors on what their fiduciary role should be.

Previous attempts at a new fiduciary rule have had mixed results; an Obama-era rule was struck down by a federal appeals court, and a Trump Administration attempt at revising the rule was ended after Biden took office.

Changes to the rule have been touted as part of the Biden Administration’s efforts to reduce the burden of “junk fees” on consumers. The Biden Department of Labor (DOL) is seeking to address loopholes in the definition of “investment advice” that purportedly allowed some financial advisors to take advantage of retirement savings account holders.

“Financial advisors should put savers’ best interests first and not sell them lower- returning products in order to maximize their own fees,” Lael Brainard, director of the White House National Economic Council, said in October, when the proposed rule was released. “When a retirement saver pays for trusted advice that is actually not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee.”

Industry players have concerns

On the other side, many in the retirement savings industry fear that the rules may end up hampering or eliminating some traditional elements of retirement savings advice.

“Because the DOL is looking to broaden who is an ERISA fiduciary, when the regulation is finalized ‘investment professionals’ could include certain associated persons of broker-dealers and investment advisers and certain insurance company producers, though additional factors, such as business models of these firms, could also affect fiduciary status determination,” said an analysis by the Armstrong Teasdale law firm. “Furthermore, current trade advocacy around this topic could result in further changes to the final rule in terms of who is in scope and who is not.”

Other groups say they fear the Biden Administration is rushing through the new rule in order to make political hay during an election year.

The Securities Industry and Financial Markets Association (SIFMA) complained that the new rule is being pushed through at “warp speed,” and will end up adding to costs and limiting options for consumers.

“What is clear from the rushed comment period and now rushed final rule: the process was never designed to obtain and thoughtfully consider input from stakeholders or conduct robust cost-benefit analysis. Doing so under such a compressed timeframe is simply not possible. Even with its flawed and subsequently vacated 2015 rule proposal, the Department spent nearly a year reviewing comments and talking to stakeholders. In this current instance, it would not be cynical to presume the outcome of this rulemaking was pre-baked and politically driven,” said Lisa Bleier, managing director and associate general counsel at SIFMA. “Unfortunately, such a hurried approach will likely result in policy that does not ensure consistent investor protection and will limit investors’ access to advice and education and their ability to choose how they receive that advice and education.”

DOL’s Gomez urges patience

In a recent public discussion of the new rule at the NAPA 401(k) Summit, Lisa Gomez, assistant secretary of labor with the Biden Administration said that the bottom line is providing more protection for retirement investors.

“We’re trying to the extent possible to make this not so difficult and to draw upon what works for everyone so we can have just one level playing field,” Gomez said in an interview with American Retirement Association CEO Brian Graff. “How can we best do that so that we can end up at the other side in a better place where people know what’s expected of them and people know what to expect of investment advisors?”

Related: DOL sends controversial new fiduciary rule to White House for review

Graff noted that one of the big questions in this debate concerns the role of employers as plan sponsors. “We certainly agree with the importance of fiduciaries helping plan fiduciaries with those investment options,” Graff said. “A point that as an organization NAPA has made repeatedly is the fact that with respect to individual wealth management advice given at that level, you do have [some existing regulations], but none of those apply to the advice given to the plan sponsor.”

For her part, Gomez said she understood that many groups are unhappy with how the new rule is proceeding, but she asked for patience. “Please read the rule before you make judgment on the rule,” Gomez said. “I’m sure they’ll be complaints filed in record time. There is sadly so much misinformation. Just get the facts. If you don’t like the facts, you’re perfectly entitled to not like the facts as we’ve written them, but at least know what you’re complaining about.”