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Regulation and Compliance > Federal Regulation > DOL

Would New DOL Fiduciary Rule Curtail Advice Access? No Way, Consumer Groups Testify

By Melanie Waddell

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The claim by the brokerage and insurance industries that small savers would lose access to advice under the Labor Department’s new fiduciary proposal “is little more than a scare tactic,” Micah Hauptman, director of investor protection for the Consumer Federation of America, told Labor officials.

The federation is among 45 groups, some supporting the proposal and some opposing it, that requested to testify at the two-day online hearing, which started Tuesday and ends Wednesday.

The ”cynical claim” that the rule will constrain advice access is based on the brokerage and insurance industries’ 2016 fiduciary rule assumptions, which “are not applicable to the current proposal,” Hauptman told Labor officials.

Labor’s new proposal “broadly aligns” with the SEC’s Regulation Best Interest, Hauptman said, “and there is no evidence that that rule has reduced small savers’ access to investment recommendations. We expect the DOL rule to operate similarly, providing comparable protections to retirement plans and participants and to IRA investors.”

Further, “many financial professionals already support and successfully operate under a strong fiduciary standard while serving clients of all means,” Hauptman relayed.

“If some firms were to decide to pull out of the market, others would step in to provide high quality products and services without harmful conflicts,” Hauptman continued.

The reality, according to Hauptman, is that “small savers have the most to gain from the DOL proposed rule. They can least afford to lose any of their retirement savings to bad advice, yet they are particularly vulnerable to the detrimental effects of conflicted advice.”

DOL’s new plan, Hauptman maintained, “would appropriately cover rollover recommendations, plan advice, advice about insurance and other non-securities, ensuring regardless of the type of investment professional a retirement investor works with or the type of product the professional recommends, their advice would be subject to a strong best-interest framework that ensures conflicts of interest do not taint their advice.”

The Securities Industry and Financial Markets Association and the American Council of Life Insurers testified Tuesday that Labor’s new fiduciary plan is inconsistent with the SEC’s Reg BI and the National Association of Insurance Commissioners’ Model Rule for Annuity Transactions, and would limit access to advice.

Reg BI, NAIC Model Fall Short

Both Hauptman and Stephen Hall, legal director at Better Markets, testified that Labor’s new rule fills a regulatory hole left by the SEC’s Reg BI and the NAIC model rule.

“The reality is neither the SEC nor the NAIC have fully addressed the problem of conflicted retirement advice,” Hauptman stated.

Hall agreed: “There are no persuasive arguments being advanced in opposition to the [DOL fiduciary-related] proposals. For example, contrary to what some opponents claim, neither the SEC’s Regulation Best Interest nor the state insurance regulations are adequate substitutes for the safeguards in ERISA.”

In addition, Hall stated, “retirement savers with small nest eggs will not lose access to advice once these important rules are in place.”

Hauptman further testified that the SEC’s Reg BI “is limited to recommendations to retail customers about securities, so it doesn’t apply to recommendations about non-securities or recommendations to retirement plans.”

The NAIC’s model rule “is a best interest in name only standard,” as “a producer has been deemed to have met the ‘best interest’ standard if they satisfy four component obligations, none of which includes an explicit requirement to act in the consumer’s best interest,” Hauptman maintained.

The key standard an insurance producer has to meet, “‘having a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs, and financial objectives,’ is largely a restatement of the previous [FINRA] suitability rule,” according to Hauptman.

Further, the NAIC model “defines ‘material conflict of interest’ to exclude both cash and noncash compensation,” Hauptman continued. “As a result, it does not require producers recommending annuities to mitigate their compensation-related conflicts.”

DOL’s plan “largely extends the Reg BI framework where Reg BI doesn’t apply,” Hauptman testified, “providing uniformity across regulatory regimes.”

Melanie Waddell

@Think_MelanieW

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