The U.S. Department of Labor needs to create a tougher fiduciary regulation to protect investors regardless of what the Securities and Exchange Commission does, executives from the CFP Board and other investor advocate groups told House Financial Services and Labor Committee staffers earlier this week in an online briefing.

Executives from the AARP, the CFP Board, Better Markets and the Public Investors Advocate Bar briefed Congressional staff on the effectiveness of the current DOL rulethat went into effect last February and is just now being enforced by the agency, and whether the new or amended rule the agency promised last spring should be tougher. All four groups said a tougher standard is needed.

“Clearly, people investing their hard-earned savings for a financially secure retirement deserve to know that the financial professional advising them is working solely in their interest. We call on the Department Labor to issue proposed rules designed to update and modernize requirements that reflect the reality of today’s marketplace,” CFP Board Chairwoman Kamila Elliott told congressional staffers, according to written remarks obtained by Financial Advisor.

Retirement investment advice must be in the “sole interest” of the plan and plan participants, which is not the case today, Elliot said.

“The current five-part test that determines whether a financial professional meets the definition of fiduciary is woefully outdated. It was adopted in 1975 when IRAs had just been created and 401(k)s didn’t even exist. So, it isn’t necessarily a matter of adding to the DOL rules, it is about updating and modernizing them to reflect a world when most Americans are personally responsible for managing their own retirement savings,” she said.

Elliott said that no matter how “proud” she was that the CFP Board required CFP professionals to commit to a fiduciary standard, “we recognize the limitations of a professional standard setting body. As such, CFP Board has long advocated for a federal fiduciary standard for all investment advice.”

The DOL was not asked to speak at the meeting, according to one Congressional source, and did not respond to a request for comment.

Representatives of the securities industry were also not asked to speak, but Sifma President Kenneth Bentsen Jr. distributed a statement to congressional staffers the morning of the briefing entitled, “Congress Spoke and the SEC Acted: Now Is Not the Time to Rewrite Rules and Upend the Retail Investor Market.”

Bentsen said that “efforts to reprise the DOL fiduciary rule would conflict with Reg BI’s robust investor protection, likely restricting access to advice, raising costs to investors and limiting their choice to select the service they want to buy.”

The CEO of Sifma, which represents the interests of the securities industry and Wall Street, also argued that the securities marketplace is already highly regulated and was “enhanced most recently by the SEC’s Regulation Best Interest in response to the Dodd-Frank Act, which imposes stringent mandates on brokers to disclose, mitigate and eliminate conflicts related to the provision of advice.”

But investor advocates argued that the DOL has the responsibility to administer congressionally established requirements for financial advice under ERISA that are distinct from, and more rigorous than, those that apply under insurance and securities laws to nonretirement assets.  

“In terms of who the rule does not apply to, presently, many brokers are able to carve themselves out of fiduciary status under ERISA by using account agreements that disclaim one or more elements of the five-part test,” Christine Lazaro, former PIABA president and a professor of clinical legal education at St. John's University School of Law, said in an interview after participating in the briefing.

Most commonly, “the firms state that they are not giving advice on an ongoing basis or that the advice they give is not the primary basis for any investment decision made by the investor. This is a problem because retirement investment advice is then subject to the lower SEC standards, and investors are not getting fiduciary advice,” Lazaro said.

“We did also talk about how the SEC rule doesn’t really overlap with the DOL rulemaking because the SEC does not have jurisdiction over several different types of advice givers, including insurance brokers, commodities brokers or more general financial planners,” she added.

Stephen Hall, the legal director of Better Markets, a pro-consumer trade group, said at the briefing that that other regulations applicable for financial advisers “do not, and actually cannot, substitute for a strong DOL rule.

"The bottom line is that neither the SEC nor the state insurance regulators have the legal authority or the resolve that is necessary to adequately protect retirement savers from the advisor conflicts of interest that siphon away so much of their hard-earned money,” Hall said.

According to Hall, the current DOL Rule gives firms the ability to routinely stipulate in the fine print of their contracts that elements of the agency’s five-part test—and therefore the fiduciary duty itself—simply do not apply.

“For decades, advisors have been able to avoid their fiduciary obligations under ERISA and profit handsomely by persuading investors to roll their savings into a wide variety of high-cost, high-risk and poorly-performing investments,” Hall said.

Although the DOL has issued guidance “in an effort to limit the ability of advisors to skirt the law under the definition, the fact remains that all advice, including rollover recommendations, remains subject to the five-part test," he said. "Modernizing the current DOL five-part test through formal rulemaking is essential."