DOL Hasty Push of Latest Fiduciary Rule Will Harm American Retirement Savers

In this Pennsylvania + Wall blog post, SIFMA’s Lisa Bleier explains why this hurried approach will result in a policy that does not ensure consistent investor protection and will limit investors’ access to advice and education and their ability to choose how they receive that advice and education.

On Friday, March 8, the Department of Labor (DOL) sent the final version of its latest fiduciary rule to the Office of Management and Budget, the last stage of the regulatory process before the publication of a final rule. This comes less than five months after the rule, ostensibly but not realistically aimed at protecting the interests of American retirement savers, was proposed. Regulation in Washington is known for moving at a deliberate pace – sometimes is measured in years, not months. And while this isn’t always ideal, usually it is intentional to ensure the end result of any new policy meets the intended goals and avoids unintended consequences – that no harm is caused. In this realm of thoughtful consideration, five months from proposal to final is warp speed. And it raises very genuine questions about why a rule with such broad impact and such potential to undermine the retirement savings ability of everyday Americans, would be hastily pushed through.

What is clear from the rushed comment period and now rushed final rule: the process was never designed to obtain and thoughtfully consider input from stakeholders or conduct robust cost-benefit analysis. Doing so under such a compressed timeframe is simply not possible. Even with its flawed and subsequently vacated 2015 rule proposal, the Department spent nearly a year reviewing comments and talking to stakeholders.  In this current instance, it would not be cynical to presume the outcome of this rulemaking was pre-baked and politically driven.

Unfortunately, such a hurried approach will likely result in policy that does not ensure consistent investor protection and will limit investors’ access to advice and education and their ability to choose how they receive that advice and education.

We know this because we’ve been here before – more than once. In 2010, the DOL proposed a rule that dramatically expanded the 35-year-old regulatory definition of fiduciary. The proposed rule was poorly thought through and would have left millions of retirement accounts without the ability to make even the most routine investments. After strong opposition due to the harm it would have caused, the DOL withdrew the rule.

In 2015, the DOL re-proposed the rules, and despite theoretically studying all aspects of the issue for five years, the new version had the same harmful impact. A Deloitte study commissioned by SIFMA found the rule would have led to less choice for investors. Specifically, 53% of financial institutions surveyed reported being forced to limit or eliminate access to retirement savers, impacting 10.2 million accounts. Nearly 95% of firms surveyed reduced access to at least some of the products typically offered to retirement savers. Ultimately, the Fifth Circuit Court of Appeals vacated the rule and related changes in 2018.

The Department’s haste also indicates it is not making the changes needed to rectify legal errors in the proposal, including those in clear conflict with the 2018 court decision striking down the Department’s last fiduciary rule.

For starters, the proposal lacks sufficient cost-benefit analysis that the DOL has an obligation to present. Such an analysis should identify all the relevant costs and benefits, quantify them when possible, and when quantification is not possible, explain why. The DOL does not quantify any of the proposed rule’s benefits. Nor does the DOL provide an analysis of the shortfalls of existing regulation, which it is proposing to amend after only being in place for two years.

This brings us directly to the justification of the need for the regulation’s existence. That’s because it is unnecessary: existing regulations such as the SEC’s Regulation Best Interest, or Reg BI, the DOL’s related prohibited transaction exemption, and various state laws already provide significant benefits to investors without being overly expansive and introducing conflicting regulatory standards. The DOL’s cost-benefit analysis fails to consider the promulgation and implementation of Reg BI, or the Department’s own 2020 PTE.

Notably, FINRA – one of the regulators responsible for reviewing and enforcing compliance with Reg BI – wrote to the DOL earlier this year noting the success of the rule: “we believe retail customers are well-served by the robust protections offered by Reg BI and by the SEC’s purposeful consideration of how to preserve investor access (in terms of choice and cost) to differing types of investment services and products.” The letter also raised several areas of concern where the proposal differs or conflicts with Reg BI, such as individualized disclosures and far broader restrictions on compensation. They urged the DOL “to consider deferring to Reg BI more broadly, or at a minimum, hewing more closely to Reg BI’s definitions, requirements, and interpretations, in order to help address potential ambiguities that may complicate good faith attempts at compliance, avoid conflict with existing rules, and better ensure that the Proposals’ objectives are achieved.”

Not to mention, virtually the entire proposal is inconsistent with the Fifth Circuit’s 2018 decision, including the various new exemption changes, which are overly prescriptive and unnecessary. In that decision, the Court found that the Department’s redefinition of investment advice fiduciary had departed from the requisite relationship of trust and confidence. In addition, the Court held that the Department lacked the authority to go beyond Congressional intent, regardless of how the world may have changed since 1974.

The Department has long been well aware of these issues yet is muscling forward another ill-conceived fiduciary proposal that, if in place, will raise costs, limit options and provide no benefit to investors saving for retirement.

Policymakers, from the White House to members of Congress, should reconsider this proposal before it is too late to prevent harm to these investors.

Lisa Bleier is Managing Director and Associate General Counsel, Head – Wealth Management, Retirement and State Government Relations at SIFMA.