The Department of Labor's (DOL) proposed fiduciary rule for retirement advisors came under intense scrutiny during a recent House subcommittee hearing. The hearing saw a predominantly critical view towards the proposal, lacking substantial support.
Kamila Elliott, CEO of Collective Wealth Partners and 2022 CFP Board chair, stood as the sole defender amidst four other witnesses who were vocal in their opposition. This imbalance in representation is a typical scenario in congressional hearings where the majority party often dictates the speaker lineup. Given the negligible Republican backing for the DOL's proposal, the hearing's composition was anticipated.
The DOL’s proposal seeks to broaden the fiduciary definition to include more advisors dealing with retirement savings and plans. This includes those giving one-time advice on account rollovers and annuity purchases. Rep. Brad Sherman (D., Calif.), the ranking member on the Financial Services Committee’s subcommittee on capital markets, expressed a need for regulation in this space but acknowledged the necessity for improvements in the current proposal.
Democratic Representative David Scott of Georgia, known for his opposition, called for the withdrawal of the rule. He argues that it would restrict financial advice access for lower-income savers. This sentiment was echoed in a bipartisan letter addressed to the acting labor secretary and the head of the Employee Benefits Security Administration (EBSA), urging the abandonment of the proposal.
Critics raised concerns about the DOL's proposal, including its redundancy due to existing regulations and the hastiness of its implementation. A significant point of contention is the potential impact on financial service professionals operating on a commission model. Marc Cadin, CEO of Finseca, argued that the proposal's fiduciary obligations could lead to financial advisors withdrawing from the low- and middle-income retail market due to increased regulatory burdens.
Other representatives from the Insured Retirement Institute and the American Council of Life Insurers, as well as Bradford Campbell, a former assistant secretary of Labor under George W. Bush, supported a best-interest standard but opposed an exclusive fiduciary standard. Susan Neely, CEO of ACLI, emphasized support for both standards but rejected a fiduciary-only approach.
The DOL did not immediately comment on the criticisms raised during the hearing. Elliott, supporting the proposal, highlighted that CFPs have been operating under a fiduciary standard for several years, and their numbers have significantly increased. She also pointed out the adverse effects of conflicted advice on retirement security, citing instances where investors received inappropriate insurance products.
Opponents of the DOL's fiduciary rule argue that the current regulatory landscape, including the Regulation Best Interest by the SEC and state-level regulations overseen by the National Association of Insurance Commissioners, sufficiently addresses concerns about unsuitable investment recommendations. They assert that these existing regulations negate the need for the DOL’s proposed rule.
The opposition has been actively working to garner support against the proposal, evident in the over 19,000 comments received by the department and calls for a legislative rider to the next DOL funding bill to prevent rule advancement. Jason Berkowitz of the IRI predicts a legal challenge if the DOL proceeds with its rule.
In conclusion, the proposed fiduciary rule by the DOL faces considerable opposition, with critics arguing for its withdrawal and suggesting that existing regulations are adequate to protect investors.
