Financial Advisor IQ (March 17, 2022) - More than three dozen groups are urging the department to revise the exemption put in place in 2020 that allows firms to collect revenue-sharing fees.
The Department of Labor is facing calls from consumer and investor advocacy groups urging the agency to revise its fiduciary rule and the exemptions put in place under then-President Donald Trump.
More than three dozen groups, including the AFL-CIO, Consumer Federation of America, Committee for the Fiduciary Standard and the Public Investors Advocate Bar Association, as well as several professors of law, point to studies showing that the DOL’s 2016 fiduciary rule “improved retirement savers’ investment returns by reducing conflicts of interest in retirement-related investment products” before it was vacated in the courts in 2018.
The current iteration of the DOL's advice standards is “problematic” because of its emphasis on investment advice provided on a regular basis, the advocates wrote in a letter sent Wednesday to Employee Benefits Security Administration acting assistant secretary Ali Khawar. That leaves room for “potentially financially damaging, if not ruinous, one-time recommendations including recommendations to purchase inappropriate insurance annuities or other alternative non-securities, such as gold, bitcoin, or collectibles,” they wrote.
The advocates are also urging the DOL to clarify the difference between investment “advice” and investment “education.”
The letter also takes aim at the DOL’s Prohibited Transaction Exemption 2020-02, which lets advisors, brokers and other investment professionals, under certain conditions, to earn revenue sharing payments while providing advice on rollovers, as reported.
In October, under pressure from industry groups including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Investment Company Institute, the DOL extended the exemption, as reported.
According to the letter from the consumer advocacy groups, however, the exemption “frames the retirement advice provider’s basic obligation in comparatively weak terms,” while the disclosure requirements of the exemption “are inadequate both in substance and timing.”
The advocates are also calling for the elimination of what they say is a loophole that provides relief to entities with a history of misconduct.
“Last spring, in its regulatory agenda, the Department correctly acknowledged the need to update the fiduciary rule to protect retirement investors from investment advice tainted by conflicts of interest,” they write. “We urge the Department to move forward with that agenda and the supporting regulatory changes we have identified in this letter.”