Republican lawmakers in the House of Representatives wasted no time in slamming the Department of Labor’s latest fiduciary rule, which the agency approved yesterday.
The new Retirement Security rule, which takes effect September 23, expands the definition of fiduciary to brokers and insurance agents, as well as to those offering annuities and first-time advice, in a bid to protect retirement investors from conflicted investment advice, said Julie Su, the acting labor secretary, in a statement.
“This rule protects retirement investors from improper investment recommendations and harmful conflicts of interest,” Su added.
But GOP lawmakers immediately pushed back on the rule, raising the specter of future industry litigation, which got a similar Obama-era rule vacated in 2018. “DOL failed to learn from its own past blunders. This final fiduciary rule mirrors its shameful predecessor that was vacated by the 5th U.S. Circuit Court of Appeals,” said Rep. Virginia Foxx, in a statement. Foxx is a North Carolina Republican and chairwoman of the Committee on Education and the Workforce.
She also warned that the regulation “again encroaches on the regulatory jurisdictions of the Securities and Exchange Commission and state insurance regulators. This regulatory overreach runs counter to the will of Congress and court decisions.”
Foxx was joined in her criticism by two Republican U.S. senators: Ted Budd and Bill Cassidy. (Cassidy, a medical doctor, is also the ranking member of the Senate Committee on Health, Education, Labor and Pensions.) The three warned that the DOL’s fiduciary rule would drastically increase the cost of compliance, putting access to retirement investment out of reach for the majority of low-income Americans.
“Currently, financial advisors are required to abide by the rigorous best interest standard. This standard protects Americans from being sold deficient products while allowing them to buy from broker-dealers without having to pay for the more expensive fiduciary-level advice,” Cassidy and Budd said in a statement.
The two senators pointed to a 2017 Deloitte study on the Obama-era fiduciary rule. After it was approved in 2016, the study said, 29% of brokers limited their services while 95% of brokers limited the products they made available to retirement investors, which meant eliminating or limiting asset classes offered.
“The Biden administration’s priority should be making it easier for Americans to invest for a secure retirement,” said Cassidy, who represents Louisiana. “Instead, this policy imposes burdensome regulations that restrict investing opportunities, especially for those who are lower- and middle-income.”
The National Association of Insurance Commissioners has also criticized the rule. The association, which has created a suitability model regulation that 45 states have adopted, said in a statement that it “continues to have significant concerns about the [fiduciary] rule … which was rushed through the administrative process at DOL and the Office of Management and Budget with virtually no coordination with state insurance regulators.”
The association also complained the rule “discounts the work of 45 states and counting to enhance consumer protections for these products by adopting the NAIC’s Suitability in Annuity Transactions Model Regulation, which extends a level playing field to products sold within and outside a retirement plan."
Wayne Chopus, the president and CEO of the Insured Retirement Institute, said “work is already underway to determine next steps,” which would ostensibly include litigation as attorneys for the institute, as well as the Financial Services Institute, have previously said.
Chopus said the DOL has presented no proof that Regulation Best Interest and the NAIC’s suitability rule, which he said cover 90% of investors, aren’t working. “There is no evidence that this enhanced and comprehensive framework, as it exists today, is not working effectively to protect retirement savers. Yet DOL persists in inflicting an unnecessary, redundant and harmful one-size-fits-all regulation,” he said.