A coalition of 40 consumer and investor advocate groups asked the U.S. Department of Labor to hasten the agency’s promised updates of its fiduciary rule to protect investors from costly conflicts of interest.
In a letter to Ali Khawar, Acting Assistant Secretary for the DOL’s Employee Benefits Security Administration, the Save Our Retirement coalition urged the agency to “update and eliminate…loopholes in the current definition of fiduciary investment advice.”
The problems, according to the coalition, stems in part from the current DOL rule’s exemptions, which allow a broad range of financial firms and their reps to receive conflicted compensation by claiming they’re providing “non-fiduciary investment advice” to investors who follow their recommendations to roll over their retirement plans and IRAs.
“The current rule allows for conflicted investment advice that puts the retirement savings of millions of Americans at risk and is inconsistent with the letter and spirit of ERISA, the statute whose purpose is to promote the retirement security of workers and retirees,” Micah Hauptman, Director of Investor Protection, Consumer Federation of America, said in a statement. Hauptman co-signed the letter to Khawar.
Last year, the Biden Administration acknowledged the need to update the DOL’s definition of who is considered a fiduciary when providing retirement investment advice.
The DOL placed the issue on its Spring 2021 regulatory agenda, but a proposed rule has yet to be sent to the White House for review by the Office of Management and Budget, the coalition said.
“The agency can and indeed must act without delay to close the huge loopholes and weak standards that still plague the rules currently in place,” Stephen Hall, Legal Director & Securities Specialist, Better Markets and another co-signor said.
The coalition, which includes the AARP, Public Citizen and the Public Investors Advocate Bar Association, said loopholes make it easy for retirement investment advice providers to sidestep fiduciary responsibility to investors by claiming they are offering education and not advice or by saying they do not provide advice on a “regular basis.”
The DOL has already documented that retirement investment providers have “long sought to avoid application of the fiduciary standard by characterizing advisory materials that retirement investors reasonably believe is fiduciary advice, as ‘investment education,’” the group said.
Retirement investors “are often misled when educational materials are combined with highlights of particular investment products, because the retirement investor perceives them to be investment recommendations,” the coalition told Khawar.