The U.S. Labor Department’s so-called fiduciary rule, proposed during the Obama administration, would change the status of some financial professionals under the Employee Retirement Income Security Act (ERISA). It was originally supposed to be implemented in phases earlier this year but ran into delays and reviews. Now, Rep. Ann Wagner, a Republican from Missouri, has introduced a bill that would make some changes to the latest ruling, including giving the Securities and Exchange Commission the lead on fiduciary regulation, in place of the DOL.
“The fiduciary rule in its current form renders all investment professionals who work with retirement plans or advise retirement plans [as] fiduciaries under the ERISA definition,” says Raphael Katz, a partner at the law firm Sadowski Katz. This results in a strict standard against self-dealing, he says — but that could change.
Here’s what you need to know.
The Proposed Change
Wagner and financial industry proponents of the new bill say that the proposed rule is too burdensome and expensive, and would discourage investment professionals from providing retirement account advice to middle- and low-income Americans, Katz says.
Wagner’s bill would eliminate the fiduciary rule and instead require investment professionals to disclose any conflicts of interest. According to the bill’s language, professional advice would need to include information that says the recommendations ”reflect reasonable diligence, care, skill and prudence,” as well as disclose at the point of sale any compensation or conflict of interest.
Opponents of Wagner’s bill say it goes too far in terms of deregulation. “Consumer advocates that oppose the bill say that it will take away key protections for retirees, and make them vulnerable to sales pitches for products they do not need, rather than the recipients of sound investment advice,” Katz says.
The fiduciary rule has long been a target by the insurance industry, particularly the annuity manufacturers of life insurance companies, says Chris Cooper, a professional fiduciary and Certified Financial Planner, and Wagner’s bill could make it more difficult for people to compare products on their own. “There is no way for a consumer or a professional to compare products when you don’t know how they are built,” he says, which is often the case when it comes to annuities. Other objections include a lack of specifics and no guidance on how the SEC and DOL can work together on changes.
On June 27, the Labor Department issued a Request for Information inviting public comment on the proposed rule. There was a 15-day comment period regarding whether it should delay the Jan. 1, 2018, applicability date; that comment period closes July 21. It is also looking for comments on other aspects of the rule until Aug. 7.
Wagner’s bill is expected to pass the House but faces a bigger fight in the Senate. In 2015, she introduced the the Retail Investor Protection Act, which contained similar provisions to the current bill. It passed the House but failed to move on in the Senate.