The financial services industry is bracing for the release of the Department of Labor’s fiduciary rule as early as this week.
The high anticipation follows the White House Office of Management and Budget’s meetings Friday with industry and investor advocates to discuss the latest version of the DOL’s fiduciary rule. The OMB’s stamp of approval is one of the last steps needed before DOL can make final changes and release the proposal for public comment.
“Decision time is near. We think the OMB has finished it meetings and the DOL may publish the fiduciary rule this week,” said Dan Zielinkski, a spokesman for the Insured Retirement Institute.
Some in the industry feel IRI’s federal relations staff had one of the last meetings with OMB on Friday, but others say back room discussions are ongoing.
“I’ve heard those rumors, but I have also heard that the OMB is still taking calls on the proposals, so it’s hard to say. Maybe at the end of the week or early next week,” said attorney Fred Reish, a partner at Fagre Drinker who follows the rule for his investment advisor and broker-dealer clients.
Since the rule was delivered to the OMB in early September, trade groups including IRI, the Financial Services Institute, Securities Industry Financial Markets Association, Institute for the Fiduciary Standard and Consumer Federation of America have held meetings with OMB and DOL officials concerning the proposal, representatives of the trade groups said. The OMB did not respond to a request for comment.
The bottom line debate between these groups is whether the Securities and Exchange Commission’s Regulation Best Interest and National Association of Insurance Commissioners’ best interest rule governing annuity recommendations make the revised DOL fiduciary rule unnecessary.
The OMB declined to share a copy of the DOL proposal with any of the groups or with journalists.
IRI argued that more than 10 million smaller retirement account owners, with more than $900 billion in retirement savings, lost the ability to work with their preferred financial professionals as a direct result of the DOL’s Obama-era rule, which was overturned in court. IRI was a plaintiff in the litigation that overturned the rule.
The IRI said in a follow-up letter to OMB after its Friday meeting, however, that based on Acting Secretary Julie Su’s recent follow-up with lawmakers and the language in a variety of DOL announcements, that it is concerned that DOL intends to "once again attempt to treat all financial professionals who sell retirement planning products and services as fiduciaries despite the clear invalidation of that position as arbitrary and capricious rulemaking by the U.S. Court of Appeals for the Fifth Circuit in 2018,” wrote Jason Berkowitz, chief legal and regulatory affairs officer at IRI.
The adoption of similar regulations “would reduce the accumulated retirement savings of 2.7 million individuals with incomes below $100,000 by approximately $140 billion over 10 years and increase the wealth gap for Black and Hispanic Americans by roughly 20 percent in terms of their accumulated Individual Retirement Accounts (IRA) savings,” Berkowitz argued, citing a recent Hispanic Leadership Fund.
In contrast, the Consumer Federation of America, which met with OMB on Oct. 6, believes the DOL rule is necessary because neither the SEC’s Regulation Best Interest nor the National Association of Insurance Commissioner’s best interest rules for annuities go far enough to protect investors or cover all products, according to Micah Hauptman, director of investor relations at CFA.
"We’ve made clear a new DOL fiduciary proposal needs to cover rollover recommendations, advice to workplace retirement plans and advice about non-securities, including annuities that aren’t regulated as securities," said Hauptman, who added that "OMB doesn't tip its hand on what's included in the rules."
Acting Secretary Su told lawmakers in early October that every type of financial services firm that charges for retirement advice should be subject to a level playing field when it comes to fiduciary duties owed to investors.
Right now, “these companies have different regulatory obligations, even though they are all providing retirement investment advice,” she said. That leaves employees and investors vulnerable to conflicts of interest, she said.