Leaders of labor and consumer-advocacy groups clashed with representatives from the financial services industry during public hearings on Tuesday regarding the Department of Labor's controversial fiduciary proposal.
Expanding Fiduciary Status for Retirement Advisors
The proposed rule seeks to broaden fiduciary status to include retirement advisors who are not currently covered under existing regulations. Advocates argue that this expansion is necessary to protect lower- and middle-income investors.
According to Candace Archer, policy director at the AFL-CIO, "All IRA holders need assurances that any professional advice they receive about how to invest their IRA is conflict-free. The proposed rule provides them with that assurance."
Concerns from the Financial Industry
However, industry representatives contend that it is actually the less-affluent investors who stand to suffer if the rule is implemented. They argue that the compliance burden it creates will lead many retirement advisors to stop serving non-wealthy clients altogether.
Susan Neely, president and CEO of the American Council of Life Insurers, voiced her opposition, stating, "It turns a blind eye to the very real challenges retirees face and will create a scenario in which there are winners and losers in retirement. It is out of sync with the collective bipartisan mission to close retirement-savings gaps for middle-income savers."
Debate Echoes Obama Administration's Fiduciary Regulation
President Biden Supports the Proposal
President Biden publicly endorsed the Department of Labor's proposal at a White House event on October 31. He described conflicted advice as a form of junk fee that ends up being passed on to investors. Additionally, he specifically called out the annuity industry, suggesting that financial professionals in that field often steer clients towards costly products that result in substantial commissions for themselves, even when more affordable and equally suitable alternatives are available.
Industry Responds to Biden's Remarks
Representatives from the industry took issue with President Biden's characterization, arguing that it demonstrates a fundamental misunderstanding of how retirement advisors operate. They aim to correct misconceptions and highlight the valuable and personalized services they provide to their clients.
The public hearings on the Department of Labor's fiduciary proposal will continue to address the various perspectives and concerns surrounding this significant regulatory measure.
The Importance of Tailored Investment Recommendations
"Our financial professionals do not pass through one-size-fits-all investment recommendations that come down from on high," emphasized Mark Smith, a lawyer with Eversheds Sutherland who testified at the DOL hearing on behalf of the Financial Services Institute. Smith strongly rejected President Biden's characterization of the industry, arguing that advisors represented by the trade group tailor their recommendations to each client's unique goals and needs. He decried the dismissal of their hard-earned compensation as 'junk fees' for the sake of a passing sound bite.
While the 'junk-fee' label has not gained traction, proponents of the DOL proposal maintain that it is a crucial step towards ensuring that advisors prioritize their clients' best interests. Specifically, they argue that the proposal will address regulatory gaps not covered by the Securities and Exchange Commission's Regulation Best Interest or the model rule established by the National Association of Insurance Commissioners, which has been adopted by 40 states.
Micah Hauptman, director of investor protection at the Consumer Federation of America, dismissed industry opposition as both "meritless and cynical." He labeled threats of firms exiting the retirement market rather than complying with the regulation as nothing more than scare tactics. Hauptman confidently stated that if some firms were to withdraw, others would step in to provide high-quality products and services without harmful conflicts. He further emphasized that small savers have the most to gain from the DOL proposed rule, as they are particularly vulnerable to the detrimental effects of conflicted advice and cannot afford any losses in their retirement savings.
The DOL hearings will conclude on Wednesday, allowing interested parties until Jan. 2 to submit comments.
In Conclusion
The DOL proposal to enforce client-focused investment recommendations is seen by supporters as a necessary measure to protect individuals with retirement plans and those handling account rollovers. Critics' claims that the regulation would push firms to exit the market are regarded as baseless scare tactics. While the hearings are coming to an end, the opportunity for interested parties to submit comments will remain open until January 2nd.
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