"There are ample opportunities for industry and the department to partner on expanding the accessibility and affordability of investment advice, where our collective energies would be better expended," Charles Schwab said in its comment letter. "The department should dedicate its efforts there, and not proceed further with this mistaken rule-making."
In its proposed Retirement Security Rule, which was unveiled Oct. 31 and had a 60-day comment period that concluded Jan. 2, the department calls for changing its fiduciary definition by removing three prongs in the five-part test. The three prongs at issue require that the person providing the advice does so on a regular basis; the advice is pursuant to a mutual understanding; and that the advice will serve as a primary basis for decision making.
Instead, the department proposes that a person should be considered an investment advice fiduciary under the Employee Retirement Income Security Act if they provide investment advice or make an investment recommendation to a retirement investor, such as to a plan participant or the plan itself; the advice or recommendation is provided "for a fee or other compensation, direct or indirect"; and if the recommendation is made in at least one of several contexts.
The changes would put one-time advice, such as rollovers to individual retirement accounts or annuity purchases, under the fiduciary definition if the other parts of the test are met.
Better Markets, a nonprofit watchdog group, said in its comment letter that the proposal would protect retirement savers from conflicts of interest among financial advisers.
"For decades, financial advisers have been allowed to push investment products, trading strategies, and account types that cost too much, pose excessive risks and provide meager returns for retirement savers," said Stephen Hall, legal director and securities specialist at Better Markets, in an accompanying statement. "The advisers increase their profits, win bonuses or receive lavish non-cash rewards, while the retirement savings of millions of hardworking Americans are eaten away."
Several groups, including the Insured Retirement Institute and the Securities Industry and Financial Markets Association, said the proposal should be withdrawn, in part, because there are already sufficient regulations covering the marketplace, like the Securities and Exchange Commission's Regulation Best Interest and the National Association of Insurance Commissioners' conduct standards for insurance agents and insurance companies recommending annuities. The latter of which has been adopted in more than 40 states.
The groups also claimed that the proposal is a rehash of a similar 2016 rule that was vacated in federal court.
In issuing the proposed fiduciary definition changes, the department said the proposal was a more narrowly tailored approach than the 2016 fiduciary rule, which was promulgated under the Obama administration, broadened the definition of a person or entity taking on fiduciary responsibilities and replaced the five-part test.
But in its comment letter, the Investment Company Institute said that the proposal "is legally flawed. It ignores past case law, exceeds the DOL's authority and falls short of applicable administrative law standards. The proposal should be withdrawn."
The department will now sift through the thousands of comments it received to determine its path forward.
