Comments on DOL’s Fiduciary Rule are Split Pretty Much Along Party Lines
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The period for filing comments and requesting a public hearing closed August 6, with just one hundred comments and no extension or hearing despite a request from Congressional Democrats and others.

The Department of Labor’s (“DOL”) new fiduciary standard rule for those offering retirement investment advice -- Improving Investment Advice for Workers & Retirees -- was published in the Federal Register on July 7 (85 FR 40834; Vol. 85, No. 130, P. 40834). The exemption allows Investment Advice Fiduciaries to engage in certain prohibited transactions that would otherwise be disallowed under ERISA and the Internal Revenue Code (see our analysis in SAA 2020-25 (Jul. 8)). Recall that the DOL’s old rule was invalidated by the Fifth Circuit in Chamber of Commerce of the United States v. Department of Labor, 885 F.3d 360 (5th Cir.), en banc review denied (2018). The majority found several bases for striking the rule because the Department exceeded its authority under ERISA and the Administrative Procedure Act (see SAA 2020-19 (May 20)).

Comments Split Along Party Lines

A total of 103 comments were received by the August 6 deadline, essentially breaking along party lines. We offer below just a few representative institutional comments. Note that footnotes have been omitted.

Supportive

Industry groups generally supported the Proposed Exemption and concept of a harmonized approach with the SEC’s Reg BI. Some commenters also suggested clarifications or improvements.

SIFMA: “We strongly support the Department amending the Code of Federal Regulations to replace the vacated 2016 rule and re-implementing the original five-part test, reinstating Interpretive Bulletin 96-1, and reinstating the class exemptions that were part of the same 2016 initiative, as they existed prior to 2016. We also appreciate the Department’s revising its website to reflect current law. In addition, SIFMA strongly supports a class exemption that will permit financial professionals to provide investment advice in a flexible fashion. While we have a number of comments on the proposed exemption, we nevertheless believe it represents an improvement over the approach taken in 2016. The exemption’s intent is sound, constructive, and if finalized with the changes we suggest, will facilitate more investment advice for participants and IRAs, and more flexible methods of delivering that advice.”

U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness: “We support the Department’s clarification that the 1975 regulation that defines fiduciary is reinstated and the need for the Proposed Exemption. However, we believe that certain modifications, outlined in greater detail below, are necessary to improve the Proposed Exemption’s utility. In addition, we are concerned that the new guidance outlined in the preamble to the Proposed Exemption constitutes a reinterpretation of the ‘five-part’ test under ERISA that is contrary to the U.S. Court of Appeals for the Fifth Circuit’s 2018 decision to vacate the Department’s 2016 fiduciary rule… We commend the Department’s work on the Proposed Exemption and urge a rapid grant of the final Exemption with the adoption of our suggested modifications.”

 Investment Adviser Association: “The IAA strongly supports the goal of ensuring that clients receive investment advice that is in their best interest. Although virtually all of the IAA’s members are discretionary investment managers, the Proposed Exemption would be applicable to some aspects of their activities. We therefore appreciate the Department’s efforts to provide certainty in this area and to align the scope of the Proposed Exemption with the SEC’s interpretation regarding fiduciary duty under the Investment Advisers Act of 1940, as amended….”

Negative

Consumer and investor advocates for the most part panned the proposal and urged the DOL to go back to the drawing board.

PIABA: “In sum, the Department should not reinstate the 1975 Regulation. Rather, the Department should adopt a new regulation which eliminates the need to establish that investment advice has been given on a regular basis, or pursuant to a mutual agreement that the advice will serve as the primary basis for the investment decision. Any individual providing investment advice for a fee should be deemed an Investment Advice Fiduciary and held to the highest fiduciary standards. To the extent the Department establishes a class exemption, such an exemption should not lower the fiduciary obligations of Investment Advice Fiduciaries. Retirement investors deserve to have their retirement savings protected, as was intended by the enactment of ERISA. PIABA urges the Department to adopt standards that go beyond those adopted by the Commission in the enactment of Regulation Best Interest, which the Commission itself conceded was not a fiduciary standard.”

NASAA: “NASAA opposes the Proposal and encourages the DOL to rescind it because the Proposal jeopardizes the security of retirement investors. However, if the DOL is determined to move forward with the Proposal, NASAA believes that the revisions outlined below are essential in order to protect investors and promote industry compliance.”

Coalition of Investor and Consumer Advocates: “The undersigned organizations and individuals, advocating on behalf of workers, consumers, investors, and retirees, are writing to express our strong opposition to the Department’s proposed new retirement advice rulemaking package. We oppose both the final rule reinstating the 1975 regulatory definition of fiduciary investment advice and the proposed exemption allowing investment advice fiduciaries to earn conflicted compensation when providing advice regarding retirement plan and individual retirement account (IRA) investment.… We therefore urge you to withdraw the regulatory package in its entirety and to begin again on a rulemaking proposal that prioritizes protecting retirement savers from the toxic conflicts of interest that pervade the financial services industry.”

Consumer Federation of America: “We are writing … to express our strong opposition to the regulatory package put forward by the Department regarding investment advice to workers and retirees about their workplace retirement plan and Individual Retirement Account (IRA) investments. Far from ‘improving investment advice for workers and retirees,’ the final rule reinstating the 1975 regulatory definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA) and the proposal to greatly expand conflicts of interest investment advice fiduciaries can engage in when advising retirement investors seriously threaten the financial security of millions of Americans who struggle to afford a dignified and independent retirement. The only beneficiaries are the powerful financial firms who would remain free under this regulatory approach to siphon billions of dollars each year out of the retirement accounts of working Americans to line their own pockets. Between them, these two actions would ensure that most of the advice that retirement savers rely on is tainted by conflicts of interest.”

AARP: “AARP submits that the Proposal, as currently written, would authorize a harmful level of conflicted advice by fiduciaries who are providing advice to individuals with ERISA retirement accounts and their plans as well as IRA holders. Moreover, the Proposal sanctions compensation models not currently allowed and expands the types of investments covered. Perhaps, most importantly, contrary to ERISA’s mandate, AARP submits that the Proposal provides inadequate restrictions on the provision of conflicted fiduciary investment advice and does not provide the necessary substantive protections for participants and beneficiaries. AARP urges the Department to substantially modify or rescind its Proposal, and to revise it in order to expand the protections for participants and beneficiaries and other Retirement Investors in accordance with ERISA’s statutory language and the purpose and intent of Congress.”

Public Citizen: “We offer these comments in protest of the 30-day comment period, and reference our signature on a group letter stating this. Specifically, we first oppose the final rule reinstating the 1975 regulatory definition of fiduciary investment advice; and second, we oppose the proposed exemption allowing investment advice fiduciaries to recommend products where the commission received can compromise the fidelity of said advice. At stake is the retirement security of American workers and retirees who will now be exposed to suspect gambles.… This final rule must be rescinded.”

Attorneys General of California, Connecticut, the District of Columbia, Illinois, Iowa, Maryland, Minnesota, New York, and Oregon: “The Department’s actions threaten the financial future of millions of Americans. They wrongly permit many financial advisers to avoid fiduciary responsibility altogether. And they allow the retirement account advisers that ERISA requires to act as fiduciaries to maintain harmful conflicts of interest. The Department should withdraw this regulatory package and focus instead on a set of rules that truly protects retirement savers, rather than condone conflict-ridden business practices that erode the financial security of hardworking Americans.”

Secretary of the Commonwealth of Massachusetts: “I strongly object to the Department of Labor's proposed class exemption from certain prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code of 1986, as amended (the Code) for advice provided by financial institutions and professionals. The proposed class exemption will subject the retirement savings of millions of working Americans to unacceptable conflicts, costs, and risks.”

Federation of Americans for Consumer Choice: “We are deeply concerned about the latest proposal issued by the Department which we believe has the potential to significantly disrupt the marketplace to the extent it would turn many traditional insurance agents into fiduciaries and create unworkable hurdles for insurance agents and companies with the establishment of onerous rules and regulations designed for the securities industry rather than the insurance industry. We urge the Department to slow down and reconsider its adoption of the current proposal which we believe has not been adequately vetted and will have harmful consequences for American consumers.”

No Extension or Hearing

As also reported in #25, Senate Committee on Health, Education, Labor and Pensions Ranking Member Patty Murray and House Committee on Education and Labor Chair Robert Scott had asked that the comment period be extended to 90 days. In separate August 5 letters to Ms. Murray and Mr. Scott, DOL Deputy Assistant Secretary Joe Wheeler turned them down as unnecessary.

(ed: *Space considerations limit our coverage. We encourage readers to peruse the searchable database at https://beta.regulations.gov/document/EBSA-2020-0003-0001/comment . **Next is either approval or modification. We’re betting on the former.)