Today, executives from the nation’s largest financial services trade groups told the Department of Labor in the first of two days of hearings that its proposed fiduciary rule oversteps the authority given the agency by Congress, appears to ignore lawmakers’ expansion of Americans’ access to annuities and should be withdrawn.

The proposed fiduciary rule expands the definition of who is a fiduciary under the under the Employee Retirement Income Security Act, including for the first time advisors who make one-time rollover advice. At the same time, registered reps, independent insurance agents and even plan administrators will be blanketed by the standard to close loopholes in current regulations which allow some advisors to escape a best-interest standard, the DOL said.

“The Department should withdraw this proposal, which is overly broad, unnecessary, and inconsistent with existing federal regulations such as the SEC’s Regulation Best Interest. As a result, it could limit access to advice and education while also limiting investor choice in advisors,” Lisa Bleier, Head of Wealth Management, Retirement and State Government Relations at the Securities Industry and Financial Marketing Association (Sifma) testified.

Bleier said the proposal will blanket all advisor conversations, even those that are merely educational or responsive to requests for plan proposals and other inquiries.

She also said the changes will make it “challenging” even to provide consumer education in the rollover area.

Evershed Sutherland Partner Mark Smith, who testified for Financial Services Institute (FSI) at the DOL’s first day of hearings on the proposal, called President Joe Biden’s reference to annuities sales fees as “junk fees” a “lazy sound bite of one news cycle.”

The proposed rule “will only serve to drive up costs, add complexity and result in fewer Americans being able to afford” retirement advice and products, Smith said.

FSI CEO Dale Brown said in a statement before the hearing that “it is clear the DOL's proposed rule exceeds the Department's statutory authority, conflicts with the 5th Circuit decision vacating the 2016 fiduciary rule and imposes unnecessary costs that will result in Americans losing access to the advice, products and services they need to achieve a dignified retirement.

American Council of Life Insurers (ACLI) President and CEO Susan Neely said the proposed rule “Ignores the robust regulatory system implemented by the states and SEC” as well as the 5th Circuit Court of Appeals, which overturned the DOL’s Obama-era fiduciary rule on the grounds that it the agency exceeded its authority.

A number of attorneys believe that the agency will face the same legal hurdles that derailed the 2016 rule.

Neely also told DOL officials today that the proposed rule seems at odds with actions taken by Congress to close the retirement savings gap in part through expanded access to annuities.

The proposal “undervalues the essential role annuities play in providing certainty for middle-income retirees. With an option for protected lifetime income and a strong regulatory framework of consumer protections in place, it is no surprise that annuities are a product sought and used by middle-income Americans.” 

The median household income among annuity owners is $76,000. The median household income in the U.S. is $63,000, she said.

“Our ask is clear: remove this proposal in its entirety and focus instead on increasing access and certainty for American workers saving retirement,” Neely concluded.

But consumer groups and the AFL-CIO said the new rule is necessary to eliminate costly conflicts of interest.

Micah Hauptmann, director of Investor Protection at the Consumer Federation of America, said that many retirement investors reasonably expect and believe that the financial experts they turn to will act in their best interest, because the industry and their trade groups sell their services that way.

“If retirement investors beliefs and expectations about the relationships they’re in and the services that they receive are misplaced it’s because everything that financial professionals and their firms do is designed to send the message that they’re in relationships of trust and confidence with investors and they provide advice in investors’ best interest that should be relied on,” Hauptmann said.

“From the titles they use to how they describe their services and relationships and most importantly, how they function, any reasonable person would view these as trusted advice relationships,” he added.

For example, Hauptmann said ACLI has repeatedly highlighted in testimony and marketing materials “the benefits of using a financial advisor….”

The trade group has also compared the value of commission-based and fee-based advice, “suggesting that the only difference is the method of payment for the advice, not that they are different services and relationships altogether,” added Hauptmann, who said the new proposed DOL rule will even the playing field so consumers aren’t misled.