The comment period on the Labor Department’s fiduciary rule to align with the Securitiesand Exchange Commission’s RegulationBest Interest ended on Aug. 8. A goodsmattering of the comments called forLabor to amend the rule. That’s unlikely.
Just days before the comment periodexpired, Labor denied a request by lawmakers to hold a hearing or extend thecomment period on its new fiduciaryprohibited transaction exemption aligning with Reg BI.
In a July letter, Sen. Patty Murray,D-Wash., ranking member on theHealth, Education, Labor and PensionsCommittee, asked Jeanne KlinefelterWilson, acting head of Labor’s EmployeeBenefits Security Administration, tohold public hearings as Labor did in 2015when it was seeking feedback on theprevious fiduciary rule vacated by theU.S. Court of Appeals for the 5th Circuit.
In response, Joe Wheeler, deputy assistant secretary for Labor, toldMurray in early August that Labor“believes that a public hearing is unnecessary” for the proposed class exemption, as it’s “much narrower in scope”than the vacated fiduciary rule.
“I’m incredibly frustrated that theTrump administration is charging aheadso recklessly with a proposal that couldlead to retirement savers losing billionsof dollars a year due to conflicted advice,”Murray said in an email statement.
The proposed prohibited transaction exemption had a 30-day commentperiod, which lawmakers and industrygroups argued was far too short considering the rule’s complexity.
FINAL RULE ON ‘FIVE-PART TEST’
Labor’s package also included a final
rule reinstating the 1975 fiducia-
ry five-part test under the Employee
Retirement Income Security Act. Unlike
with the proposed fiduciary transac-
tion exemption, or PTE, there was “no
opportunity for comment” on the final
rule, Barbara Roper, director of investor
protection for the Consumer Federation
of America, told me in early August.
There was “no consideration ofwhether it should be amended. The preamble [to the rule] includes a discussionof how it [the final rule] will be interpreted by the Department, but the ruleis final,” she explained.
Roper and Micah Hauptman, financial
services counsel at the consumer group,
maintained in their comment letter to
Labor that “we know from past experi-
ence that the 1975 regulatory definition
of fiduciary investment advice, with its
five-part test, is easily gamed by finan-
cial firms that like to market themselves
as trusted advisers while avoiding any
fiduciary obligations to their clients.”
By reinstating “that deeply flawed
definition, the Department is ensuring
that these firms, as well as their employ-
ees and agents, will only be investment
advice fiduciaries when they choose to
be,” they explained.
“Many if not most rollover recommendations, and virtually all of thoseinvolving rollovers into non-securities,will get a regulatory free pass as a resultof the Department’s decision to reinstate this outdated, loophole-filled definition,” Roper and Hauptman said.
Labor should withdraw its fiduciaryrule package as it allows for conflictedinvestment advice and gives most rollover recommendations a “regulatory freepass,” Roper said in the comment letter.
The Public Investors Advocate Bar
THE PLAYING FIELD
By Melanie Waddell
New DOL Fiduciary Rule Generates Heated Debate
Industry groups and lawmakers asked Labor to dismantle the rule and start again.
The commentperiod on the DOL’sfiduciary rule toalign with the SEC’sReg BI ended Aug. 8.
A good smatteringof the commentscalled for Laborto amend the rule.