In a sea of legal, industry and lawmaker opposition, Kamila Elliott, former Chair of the CFP Board of Standards, was the lone witness Wednesday advocating for the increasingly controversial Department of Labor proposed fiduciary rule during a hearing before the House Capital Markets Subcommittee Wednesday.
“On behalf of the CFP Board, we support the DOL rule,” said Elliott, CEO of Collective Wealth Partners, of the proposal which would expand the definition of fiduciary advisory to any professional offering even one-time financial advice to retirement investors in qualified plans and for the first time IRAs.
The CFP Board of Standards, which certifies more than 98,000 advisors, most of whom charge commissions, “has a fiduciary standard that applies to all financial advice including one-time sales recommendations,” said Elliott, who argued that advisors from broker-dealers, investment advisors, banks and insurers are all successfully able to provide their clients with fiduciary advice.
“They have shown that any financial professional who wants to act in the client’s best interest can do so. I am here because moderate-income Americans saving for retirement should have the same access to best-interest financial advice as wealthy Americans enjoy,” argued Elliott, who said conflicts of interest, which the proposed rule seeks to eliminate, can be costly to retirement savers, forcing them to work years longer or never retire at all.
In contrast, both Republican and Democrat lawmakers and four other industry witnesses -- Jason Berkowitz, chief legal & regulatory affairs officer, Insured Retirement Institute (IRI), Marc Cadin, CEO, Finseca, Bradford Campbell, partner, Faegre Drinker and Susan Neely, president and CEO, American Council of Life Insurers (ACLI) – argued that the DOL should withdraw the proposed rule on the grounds that it will decrease the availability of retirement advice for millions of middle-income Americans, while increasing costs.
In fact, the hearing was held just two days after 50 Republican and Democrat lawmakers sent a letter to DOL Acting Secretary Julie Su arguing that the proposed DOL rule changes should be withdrawn because they are unnecessary and harmful to middle-to-low income savers.
“Disguised as an attempt to eliminate ‘junk fees,’ by the Administration, this proposal would push millions of retail investors out of transaction-based accounts and into fee-based investment accounts…which would mean higher costs, fewer choices and reduced services,” Subcommittee Chair Ann Wagner, who co-signed the letter, said in her opening remarks at the hearing.
“I’ve been pushing back against this proposal since I was elected to Congress in 2013 and I am in utter disbelief that we are still having this fight. This latest proposal is just another bite of the same rotten apple. It should be withdrawn immediately,” said Wagner.
Wagner, a Republican lawmaker from Missouri, warned that if the DOL passes the proposal, many firms and advisors “would have no other option but to increase or impose minimum asset thresholds for clients, closing the door on financial advice for many, as we saw when the 2016 DOL rule went into effect.”
Berkowitz, the IRI attorney, argued that the vast majority of firms and financial professionals already act in the best interest of their clients and are subject to “robust regulation” under SEC and 41 state best interest rules.
“What the DOL is attempting to do here with this proposal is not to fill a gap, but to create new ground where they are uniquely positioned to insert themselves into the SEC’s jurisdiction,” Berkowitz said.
As a result, he said he believed that the latest proposal will fail in court, as the DOL’s fiduciary rule did, because the agency is trying to expand their powers beyond the carve out lawmakers gave the DOL to regulate fiduciary advisors qualified retirement plans-- to registered representatives, insurance agents and even to individual products like IRAs.
“I call it the DOL two-step. Dramatically expand what is considered fiduciary advice and prohibited transaction rules for tax purposes. The effect is if there is a commission paid it becomes illegal under the fiduciary rules,” said Campbell,former Assistant Secretary for Employee Benefits Security at the DOL.
“I was one of those who lost access [to my advisor] in 2016,” added Campbell,
The proposed rule “will make it literally impossible for thousands of advisors to serve millions of investors,” testified Cadin, whose firm Finseca works with 9,000 advisors.
Cadin said one of the firm’s advisors recently told him that the 2016 DOL rule “was more disruptive to his business than Covid.”