Are the insurance industry and its Washington, D.C., lobbyists winning the war against the Biden administration’s fiduciary rule at the expense of investors?
Consumer groups and advocates who want a broader fiduciary standard argue the rule is imperative to protect investors from conflicted, costly advice and “financial advisers who recommend investments just because they pay higher commissions,” according to a Washington Post article this past weekend.
What is certain is that the insurance and brokerage industries’ lobbying and legal strategies appear to be working to vacate the rule, which for the first-time would subject insurance agents and brokers, as well as fixed annuities and one-time advice, to a fiduciary standard.
In a stunning upset for the Biden administration, in July two separate federal courts blocked the DOL from implementing the rule—the result of lawsuits brought by industry groups led by the American Council of Life Insurance and the Federation of Americans for Consumer Choice, respectively. The rule was set to go into effect on September 23.
Moreover, the U.S. District Court for the Northern District of Texas said bluntly in its decision on the ACLI lawsuit that industry plaintiffs “are almost certain to succeed” in their effort to vacate the rule, which it found almost identical to the Obama-era fiduciary rule overturned by the Fifth Circuit Court of Appeals six years ago.
“The insurance industry has staged a multi-front war against this rule, which at its core is very simple and in line with what investors reasonably believe they are already getting—advice that is genuinely in investors’ best interest,” said Micah Hauptmann, director of investor protection at the Consumer Federation of America.
One of the fights the insurance industry has picked is challenging the rule in court, Hauptmann said. “They strategically chose courts in Texas, which are in the 5th Circuit, which is generally antagonistic to regulation and has been antagonistic to this issue—although it is important to recognize there are significant differences between the 2016 rule, which the court vacated, and the 2024 rule," he said. "Even though it is an uphill battle for the DOL, it is critically important for retirement investors that the DOL not back down.”
DOL spokesman Grant Vaughn said the agency “continues to believe that the rule is essential to ensuring that retirement investors are protected. When investors get advice from a trusted financial professional, they expect the advice to be in the customer’s best interest, not the professional’s. The rule makes that a reality."
Fred Reish, a former DOL attorney and partner at Faegre Drinker, said he believes the DOL will appeal any decision to vacate the rule and expects the agency to go all the way to the Supreme Court in its battle.
When President Biden introduced the rule back in October, he said it was a way to reduce “junk fees” on retirement investors. Morningstar concurred, estimating that the fiduciary protections in the rule would save investors who are sold annuities as much as $32.5 billion over the next 10 years and likely lead to reduced insurance agent commissions.
The CFP Board of Standards is also supporting the expanded rule. The industry has been moving for years toward best-interest investment advice practices, “but since insurance and annuities aren’t covered by existing regulations, there is an enormous gap in protections on some of the most important assets that an American has—their retirement savings,” Leo Rydzewski, the CFP Board’s general counsel, said in an interview.
“The DOL is seeking to fill that gap,” added Rydzewski, who filed an amicus brief supporting the rule.
Spokesman for industry trade groups, however, said they believe the fiduciary rule would force the industry to eliminate any advice they provide on annuities and insurance products.
“We have been clear from the beginning. If allowed to take effect, the Labor Department fiduciary-only regulation will cause retirement savers the same harm as the 2016 rule after which is modeled,” Whit Corman, a spokesman for the ACLI, said.
Before it was struck down by a federal court, the 2016 regulation resulted in more than 10 million American workers’ accounts with $900 billion in savings losing access to professional financial guidance, Corman said.
Dan Zielinski, a spokesman for the Insured Retirement Institute, a co-plaintiff in the ACLI suit against the rule, said, “So far, the courts have issued a stay on the rule in response to our lawsuit. The court also said there is a very strong likelihood of our lawsuit succeeding on the merits of the case. Just a bare bones review generated the stay this rule. We've made our case of this rule being likely harmful to consumers just as the 2016 rule was,” he said.
The insurance industry has also been successful in persuading lawmakers. GOP lawmakers in the House have introduced two bills—one that would block DOL funds from being used to implement or enforce the rule, and a bill to invalidate the rule using the Congressional Review Act.