The Department of Labor’s proposed fiduciary rule came under harsh criticism today during the House of Representatives Education and Workforce Committee's second hearing on the retirement security rule which seeks to extend fiduciary duty to insurance agents and broker-dealer register representatives. Currently they are able to use exemptions from the fiduciary legal standard.

“DOL’s expensive rule is a blatant power grab, seeking to force more types of financial professionals under their control, when other regulatory bodies already have authority over their actions,” Education and Workforce Committee Chair Bob Good said in opening remarks.

“The rule is clearly outside the purview of the agency, yet they’re trying to regulate it anyway,” said Good, who added that ERISA limits the DOL’s reach to retirement plans for private sponsors.

Iowa Insurance Commissioner Doug Ommen also complained about the proposed rule’s potential regulatory overreach and interference with state insurance regulation. The DOL’s Obama-era fiduciary rule was overturned in the Fifth Circuit Court of Appeals because the court found the agency’s attempt to regulator brokers and other salespeople exceeded its regulatory authority.

The proposal could have significant repercussions for the insurance regulatory framework and negatively impact consumers, the Iowa Insurance Commissioner argued.

“Given the retirement savings gap, the DOL should be encouraging not limiting access to well-regulated retirement guidance and products such as annuities,” said Ommen, who regulates 40 life insurance companies holding more than $90 billion in assets.

Ommen also criticized the DOL’s “lack of substantive engagement” with state insurance regulators. “I’d expect the DOL would want to fully understand our authority with our new best interest rules before this recent expansion into the retail annuities market. That did not happen, he said, noting that 42 states have adopted a best interest regulation, with the remaining states expected to adopt the rule by 2025.

According to Jason Berkowitz, chief legal and regulatory affairs officer for the Insured Retirement Institute (IRI), the DOL has hypothesized that regulatory gaps exist and are being exploited to harm retirement savers, but it has produced no evidence to support that theory.
“If bad actors are exploiting regulatory gaps to harm retirement savers, such gaps should be addressed through targeted rulemaking. But a targeted approach is impossible without clear evidence of a problem. So instead, the DOL wants to completely upend the existing regulatory framework.”

Berkowitz also alleged that consumers will again lose access to financial professionals of their choice and lifetime income strategies such as annuities, as they did as a result of the 2016 rule, according to a Deloitte study.

Joseph C. Peiffer, president of the Public Investors Advocate Bar Association, PIABA, was the lone witness who supported the DOL’s proposal, which he said would settle the duty that advisors have when dealing with retirement investors’ money.
The proposed rule would require reps and insurance agents to do away with conflicted-advice that allows professionals to put their financial interests before that of investors, Peiffer said

With investors anticipated to move $4.5 trillion from retirement plans into IRAs in the next 3-4 years, “conflicted costs will be particularly acute…because advice related to one-time rollovers is exempt from ERISA’s fiduciary obligations. This problem is compounded by the fact that advice to 401(k) sponsors and advice regarding the sale of fixed-indexed annuities and certain other non-securities is also not covered by ERISA’s protections.

“Retirement savers will have an improved quality of life as a result of the savings they will gain from the loopholes the rule closes related to conflicted advice,’ added Peiffer.