Financial Planning (December 27, 2023) By Tobias Salinger

Two days of panels with critics and supporters of the Department of Labor’s “retirement security rule” proposal displayed the widely diverging views of the potential new regulation.

Earlier this month, officials from the Labor Department’s Employee Benefits Security Administration engaged in spirited, substantive discussions with financial advisors, professional organizations, industry and consumer advocates and other stakeholders about its plans to change the Employee Retirement Income Security Act by expanding the fiduciary duty to more areas of advice around 401(k) plans, individual retirement account rollovers and other topics. The panelists represented firms like Cetera Financial Group and Betterment; organizations such as the Financial Planning Association, the CFP Board, the Financial Services Institute and the National Association of Personal Financial Advisors; or their own views as industry veterans.

The Dec. 12 and 13 public hearings were part of a process that opponents argue is moving too fast ahead of the Jan. 2 deadline to submit written comments before a potential final rule later next year. Industry trade groups will almost certainly file a lawsuit to challenge the proposal, as they did successfully with a 2016 Labor Department proposal vacated by the Fifth Circuit Court of Appeals two years later.

For a lightly edited transcript from 25 key moments from this month’s public hearing on the Labor Department’s retirement advice rule proposal, scroll down the slideshow.

And find other coverage of the possible new regulation here:

· Sparks fly at DOL hearing on Biden’s ‘retirement security rule’

· DOL hearing promises passionate support and resistance from industry — here’s a sample

· What’s next with the DOL rule proposal? Here’s what to expect

· LPL CEO sees business opportunities in DOL rule proposal

· 31 changes to prohibited transaction exemptions under DOL proposal

· A new DOL fiduciary rule? 26 key excerpts from the proposal

· 3 ways Biden’s ‘retirement security rule’ could affect financial advisors

· Do Biden’s claims about ‘junk fees’ add up? Depends who you ask

· Financial groups ask for more time to comment on DOL fiduciary rule

· Labor Department proposal kicks off industry’s next fiduciary fight

Lisa Gomez, assistant secretary of labor for employee benefits security

“The proposed rule’s chief aim is to make sure that, when individual retirement investors turn to investment professionals for sound advice rooted in their best interest, they get just that — advice that is prudent, loyal, candid and free from overcharges. The proposed rule also aims to ensure that a common regulatory framework applies to all advice by trusted advisors regardless of the type of investment product, the type of investment professional making the recommendation or who is receiving the advice. Surely, whether one is recommending an annuity or a stock, working on a commission basis or for a fee, the recommendation can and should reflect the best interest of the customers. That is, it can be prudent, loyal, candid and free from overcharges. And while there are many advice providers out there who are delivering on these promises and expectations, we need to address any gaps so that retirement investors know what to expect from all trusted advisors.”

Bryon Holz, president of Brandon, Florida-based advisory practice Bryon Holz and Associates and current president of the National Association of Insurance and Financial Advisors

“There is no demonstrated need for additional rulemaking. Re-proposing the rule that the Fifth Circuit previously invalidated will only add more uncertainty for our members and their clients. The Department’s proposed definition of ‘fiduciary’ is a recycled version of the previously vacated definition and would apply to anyone providing investment recommendations on a regular basis as a part of their business. The proposed rule would even apply to one-time rollover recommendations — which 54 percent of our members reported in the survey can make up more than 20 percent of their overall business. If finalized, virtually all NAIFA members will be considered fiduciaries. This is a dramatic change for NAIFA members and their clients and will require significant change in relationships with clients and pose new cost burdens without any additional benefits for consumers.”

Kamila Elliott, CEO of Atlanta-based Collective Wealth Partners and 2022 chair of the CFP Board

“We know that, in these resilient communities, every dollar counts. I have witnessed and researched the impact on these communities when they are charged too much or don’t receive advice that is in their best interests. These are the kinds of things that expand what is already a large racial wealth gap. When we address our clients’ financial needs holistically and act as fiduciaries, we are taking steps to close that wealth gap. The wealthy receive financial advice that is best for them. Why shouldn’t those with moderate income be treated the same? The stakes have never been higher. Retirement savers today are responsible for making their own investment decisions. Like many, like some of you on the call today, I don’t have a pension. The vast majority of my retirement is in a 401(k) plan. But that was not the case in 1974 when ERISA was adopted. Because retirement savers are not investment specialists themselves, they look for help from financial professionals who they trust and are confident will do what is good for them. But that trust and confidence is often misplaced. Financial advisors who are not required to work in their clients’ best interests may sell products that carry high commissions or management fees or annuities, or, [as] we heard earlier, illiquid, privately held investments that can tie up their assets well into retirement. The potential for harm is enormous. These types of products usually introduce unnecessary risk and cost that erode savings over time. It may not appear like a lot in one year, but over time it can be the difference between someone retiring at 65, 75 or not being able to retire at all.”

Patrick Mahoney, CEO of the Financial Planning Association

“We do respectfully encourage the Department to consider an extension of the 60-day effective date and request a commitment from the Department to implement any final proposal using a phase-in approach with education, rather than punitive enforcement. For the regulated community to be successful in complying with any new requirements and changes to their obligations, there must first be clarity and mutual industry-wide understanding of the proposal, as well as sufficient time to implement any necessary changes. We also respectfully request that the Department provide more detail and clarity around how compliance with existing fiduciary standards and best-interest obligations already in place under other agency’s regulatory schemes will or will not ensure compliance with the Department’s proposed rule. While the Department has done a noteworthy effort to harmonize the rule with existing industry regulations, it does remain unclear how these competing frameworks would interact in practice. For a better understanding in advance of enforcement of any final rule and [to] provide greater clarity for our members and the industry as a whole, we respectfully request that the Department provide clear implementation guidance and compliance tools such as a succinct list of new documentation requirements, turnkey forms, templates, as well as FAQs ahead of or along with and parallel to any final rule. At a minimum, this should identify how compliance with existing regulatory requirements will satisfy the Department’s proposed requirements and, more importantly, where financial professionals are going to need to take steps beyond seeking to comply with their existing regulatory obligations.”

Daphne Jordan, senior wealth advisor with Austin, Texas-based Pioneer Wealth Management Group and chair of the board with the National Association of Personal Financial Advisors

“Fee-only compensation minimizes conflicts of interest and allows NAPFA advisors to act as true fiduciaries. It is our hope that retirement savers in the public increasingly recognize the similarities between the updated and strengthened fiduciary standards contained in the proposed rule and how NAPFA advisors provide financial advice to retirement savers every single day. Since the year 2010 when the Department first proposed updating the 1975 five-part test to determine ERISA fiduciary status, NAPFA has consistently called for an unambiguous fiduciary standard to apply to all persons who provide advice to retirement savers. NAPFA advocated in favor of the Department’s successful adoption of the 2016 investment advice rule. We recognize that, unlike the past when traditional pension plans assured financial independence in retirement, today’s retirement savers increasingly are responsible for making these key decisions in how their retirement savings are invested.”

Susan Neely, CEO of the American Council of Life Insurers

“The proposal is based on flawed data. It ignores the robust regulatory system that’s in place, it seems at odds with the intent of a bipartisan Congress and the rule package undervalues the essential role annuities play in providing certainty for middle-income retirees. 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. This is about the real lives of people with real consequences and real impact. Our ask is clear: Remove this proposal in its entirety and focus instead on increasing access and certainty for American workers saving for retirement.”

Dan Moisand, senior financial advisor with Orlando, Florida-based Moisand Fitzgerald Tamayo and current chair of the CFP Board

“The scope of CFP Board’s fiduciary duty is broad, and it covers any communication that reasonably would be viewed as a recommendation. It also covers recommendations about any kind of financial asset, including securities, investment products, real estate, bank instruments, commodities contracts, derivative contracts, collectibles or other financial products. CFP Board adopted this standard in 2018. And, at the time, we were told that the consequence of having a fiduciary duty that applies to all financial advice would be that we would have fewer CFP professionals. That did not happen. In fact, the very opposite is true. The number of CFP professionals has grown by about a third since that time in just five years. This is across all business models, including registered representatives of broker-dealers, investment advisor representatives and those with insurance licenses. All of these CFP professionals are providing financial advice to their clients, while committing to CFP Board to act as a fiduciary. Our requirements have not adversely impacted their business. Today the firms at which CFP professionals work tell us that they don’t have enough CFP professionals to meet their clients’ needs. Consumers also increasingly demand to work with a CFP professional. This is because we offer what consumers want.”

Lisa Bleier, head of wealth management, retirement and state government relations for the Securities Industry and Financial Markets Association

“The Department has chosen to draft a regulation so broad as to make all conversations between a financial professional and an investor into a risk of fiduciary conversation. We see these changes as even broader and less tethered to the common law of trust than the 2016 changes that were vacated by the Fifth Circuit decision [in Chamber of Commerce vs. the U.S. Department of Labor]. This Department’s new proposal is based on the arrangements a retirement investor makes with investable assets that are not even in an ERISA-covered plan nor IRA. It is based on the financial professional’s business rather than on the relationship of trust and confidence with respect to the plan or IRA at hand. It does not acknowledge that dealers in securities and commodities [are] selling to sophisticated large plans where there are very experienced investment managers [who] are not acting as fiduciaries. It also covers market color as well as publicly available research and quotes, despite those obviously not being fiduciary actions.”

David Certner, legislative counsel and policy director for the AARP

“While many who provide advice already act in the best interest of retirees, some do not. And the recommendations from those who do not may be conflicted and self-interested, benefitting the advice provider at the expense of the retiree. And knowing whether advice is being provided in one’s best interest can also be difficult and complex. Broker-dealers, for example, are subject to a best-interest requirement imposed by the SEC. But the standard mostly extends only to recommendations on qualified securities. The standard does not extend to recommendations to invest in real estate, or fixed annuities or commodities, for example. This has resulted in higher standards in some areas than others, resulting in worse outcomes for some clients on retirement investments. One-time recommendations are also not covered by the existing standard. This outdated regulatory exception, not found in the statute, has nothing to do with the importance or impact of the advice given.”

Mark Smith, of counsel with Eversheds Sutherland and representing the Financial Services Institute

“Our disagreements with the Department primarily are with respect to the — its authority to make new law in the definition of who is a fiduciary and with respect to particulars of the current proposal as seen to us to be counterproductive to advancing the interest of retirement investors within — with respect to the duplication and the complexity and cost they add. With respect to my props — and thank you for admiring them — I much appreciate that the Department and ERISA do not operate in a vacuum here. You know, I have disclosure documents required by three different agencies here. Our members do not operate in an ERISA vacuum. Retirement investors don’t make choices and aren’t protected in an ERISA bubble. I mean, your regulation is part of a national system of regulation and we point out only that it has consistency, of how you fit into that overall pattern of regulation as consequences here, not only for the industry, but also for retirement investors, and that it’s important that we all be mindful of that as we think about how we’re proceeding here.”

Micah Hauptman, director of investor protection for the Consumer Federation of America

“What should consumers think of these advisors? They should have trust and confidence in them. You know what retirement investors don’t want or expect? To be steered to overpriced, suboptimal products or services that aren’t in their best interest by people who seek to evade their regulatory obligations and accountability — all so they can get a big payday. Unfortunately, that’s what the 1975 five-part test defining ‘fiduciary investment advice’ allows. It allows investment professionals to function as advice providers, to occupy positions of trust and confidence with retirement investors and to foster reliance on the advice that they provide while evading the fiduciary duty appropriate to their advisory role. The five-part test is inconsistent with the text of ERISA and it defeats investors’ reasonable expectations about the relationships they are in and the services that they are receiving. The proposed redefinition of ‘fiduciary investment advice,’ on the other hand, is faithful to the statute and it would honor retirement investors’ reasonable expectations when receiving advice from financial professionals who hold themselves out and function as trusted advice providers.”

Joshua Rubin, vice president and associate general counsel at Betterment

“Digital advice has proven effective in extending access and lowering costs for investors. Using thoughtful design choices, digital interfaces are often uniquely capable of presenting understandable breakdowns of fees and revenue streams associated with the investment products in an account, helping to highlight and, ultimately, reduce conflicts of interest. Certain aspects of the proposal, however, are likely to be counterproductive to the core goals of the rulemaking, because they are likely to reduce rather than enhance the opportunities for investors to actually receive fiduciary advice. In our view, the most problematic provisions of the proposal share a common thread. They expand the application of fiduciary standards to interactions far removed from actual investment recommendations. That remains an important place for non-fiduciary educational interactions where it is practically impossible to obtain sufficient information to satisfy the fiduciary duty of prudence. Indeed, other fiduciary regimes recognize that it is not practical for every interaction to be subject to full-on fiduciary status. For example, under the [Investment Advisers Act of 1940], interactions relating to marketing and promotion — which are entirely distinct from the recommendation of the nesting products — require disclosure, oversight and controls that have not been solved subject to fiduciary requirements. Consistent with this approach, several types of interactions identified in the proposal should not be subject to an investment fiduciary standard.”

Candace Archer, policy director for the AFL-CIO

“The retirement investor protections contained in the proposed rule are long overdue. We agree with the Department’s concise assessment set out in its January 2023 regulatory agenda that the current rule, quote, ‘is not founded in the statutory test of ERISA, does not take into account the current nature and structure of many individual retirement plans and IRAs, is inconsistent with the reasonable expectations of plan officials, participants and IRA owners who receive investment advice and allows many investment advice providers to avoid status as a fiduciary under federal pension law.’ The current loophole-ridden rule was promulgated in 1975, and clearly a lot has happened and changed since then. As the Department notes in its proposal, in 1975 IRAs had only recently been created and 401(k) plans did not even exist. Private retirement savings were mainly held in large employer-sponsored, defined-benefit pension plans. And so, there was no need for participants to concern themselves with how their retirement money should be invested.”

Wayne Chopus, CEO of the Insured Retirement Institute

“Our industry champions workers and retirees and has long sought bipartisan policies to strengthen financial security. We advocate for expanding retirement savings opportunities and facilitating protected lifetime income solutions to secure and dignify retirement for America’s workers, retirees and their families. And we do so proudly. Financial professionals are dedicated, caring women and men who work daily in their communities nationwide to provide tailored financial strategies and products that serve their clients’ best interests. And millions and millions of workers and their families have chosen to purchase annuities to protect their retirement assets and provide a stream of guaranteed lifetime income — very similar to the defined-benefit pension plans available to many union and governmental workers. Those individuals who — their median household income is $76,000 — rely on our industry’s innovative products to meet their accumulation, income and asset protection needs. And this proposed rule is completely contrary to the president’s inclusive economic principles and will actually harm the very consumers he and the Department have said they wish to help. The rule will deepen the nation’s retirement crisis by eliminating access to sound financial advice.”

Tim Hauser, deputy assistant secretary of labor for program operations with the Employee Benefits Security Administration

“Our intent is not to suggest that, just because another human may rely upon a communication, that that counts as the sort of advice we’re talking about. The aim of that language is to encompass relationships where the person is really holding themselves out as somebody who’s acting for the investor, in their interest, in a confidential sort of relationship and they’re basing the recommendation, not just on sales, but on an assessment of the person’s individualized circumstances. If you think there is a better way for us to write that, in addition to just saying that — we’re repeating what the Fifth Circuit said, which I don’t agree with — we would invite you, we would encourage you, to suggest what language you think would draw that line, unless your view truly is that only the five-part test — that’s it — or that salespeople who are insurance agents can never be fiduciaries. So I’m just asking if you could, as you’re doing your work on your comment, if you could think of that.”

Ali Khawar, principal deputy assistant secretary of labor with the Employee Benefits Security Administration

“I did just want to, before we take the break, just highlight one thing — because I haven’t unfortunately been able to attend the whole hearing today — but I’ve heard several commenters on the president’s remarks. So I did [want to,] maybe food for thought as we take our break, just quote something from the president’s remarks. ‘Now, let me be clear about something: Most financial advisors give their clients good advice at a fair price and are honest with them, but that is not always the case.’ So I just highlight that, because I’ve heard a number of individuals state that the president actually made remarks that painted an entire industry with a broad brush.”

Mark Quinn, director of regulatory affairs for Cetera Financial Group

“We will address our concerns about specific aspects of the proposal, but we do not believe it is legal and viable in this current form. The Department should withdraw it and start over. The proposed rule would vastly expand the categories of individuals who are deemed investment advisors and fiduciaries in a way that exceeds the Department’s jurisdiction under the original statute. I would note that Cetera proudly acknowledges fiduciary status in connection with recommendations to undertake rollovers and assets from employer-sponsored retirement plans to IRAs. That being said, we are concerned that the proposed expansion of the standards is inconsistent with both the text of ERISA and the decision of the Fifth Circuit Court of Appeals in the Chamber of Commerce case. The key aspect of the Fifth Circuit’s decision is that, in order to be named a fiduciary, our service providers must be in a relationship of trust and confidence with the investor. The current standard is embodied in the five-part test, which establishes an appropriate compilation of the elements necessary to create such a relationship. The Department is attempting to do something that the Fifth Circuit said was not permissible — creating a presumption that the level of trust and confidence necessary to establish fiduciary status under ERISA exists under a much wider set of interactions between service providers and private investors.”

Joseph Peiffer, founding partner of Peiffer Wolf Carr Kane Conway & Wise and current president of the Public Investors Advocate Bar Association

“A Department of Labor rule would go a long way toward holding firms accountable in retirement accounts for the duty they already say they have and investors already think they have. What does this mean on an individual level to investors? Almost every week, we see a retiree come into our office who lost a substantial amount of their life savings. They’re often proud, strong workers. These people, if they go on vacation at all, they go on vacation in a car like I did when I was growing up. They’ve saved to pay off their house, put their children through college and they built a nest egg — all out of a blue-collar wage. Now these proud, strong Americans break down in my office when I explain to them how their investment was lost to conflicted advice. I’ve had clients live with me because they couldn’t afford the fuel and the lodging to go back and forth for a long trial. I’ve had a client who lost all his money and had to rent a room from his ex-wife. And, if that isn’t that the worst thing that you ever heard, I’ve had clients who’ve attempted suicide after they lost their life savings. I know, and my colleagues know, the devastation that losing their life savings can have on hard-working Americans. And this rule will make it better.”

Elena Barone Chism, deputy general counsel for retirement policy with the Investment Company Institute

“We support the principle underlying the proposal that a financial advisor should put the interest of clients first when providing advice. But there’s a difference between this principle and what the proposal would appear to do, which is to impose ERISA fiduciary status on a wide range of investment communications by anyone in the financial services business. The fiduciary standard should apply only in the context of an established relationship of trust and confidence. By applying that standard too broadly, the rule, as proposed, will limit investors’ access to needed financial information and could ultimately raise the cost they bear while saving and investing for retirement.”

Ron Rhoades, RIA owner and lawyer, associate professor of finance at Western Kentucky University

“A stock broker or an insurance agent who states to a customer, either verbally or in a written document, including Form CRS [customer relationship summary], that he or she is acting in the, quote, ‘best interest,’ end quote, of the consumer results in justifiable reliance by that customer. And fiduciary status should attach. To provide recommendations under the mantra of acting in the customer’s best interest — a phrase which over 10,000 judicial decisions in the United States have applied as equivalent to the fiduciary duty of loyalty — but, then for that person to disavow fiduciary status, is tantamount to fraud, actual fraud. I find it disturbing as well that the very plaintiffs who secured the Fifth Circuit’s opinion, which stressed the need for the Department to approach the application of fiduciary status by applying common law principles, are now opposed to being held accountable as fiduciaries where a relationship of trust and confidence exists.”

Chantel Sheaks, vice president of retirement policy for the U.S. Chamber of Commerce

“Given the breadth of the proposed regulation and the significant changes not only to [prohibited transaction exemption rule No.] 2020-02, but also to PTE 84-24, which has been in use for almost 40 years, and including a number of other PTEs, it’s taken some time for our members to fully understand and recognize the impact this is going to have on their businesses. It’s also been very difficult to receive feedback and truly understand the impact on businesses, given that the comment period has spanned three nationally recognized holidays and other holiday observances, and it included and took time away from preparing our comment letters to prepare for this hearing and participate in it as well. As such, my testimony today is going to focus on questions that we actually have for the Department of Labor. Because I only have 10 minutes, I know it isn’t possible for the Department of Labor to respond at this time to the questions I’m posing. However, given that DOL stated that one of the benefits of holding a public hearing before the comment period closes is that testimony will inform comments [the Employee Benefits Security Administration] receives, I ask that DOL will commit to providing answers to these questions to the public well in advance of the Jan. 2, 2024 comment due date.”

Knut Rostad, president of the Institute for the Fiduciary Standard

“I want to comment on some of the comments or general comments from the rule opponents, such as SIFMA and the Chamber of Commerce. And I think they offer vivid examples why this rule is so sorely needed. Their comments reject the underlying rationale for fiduciary advice that had been, until recently, the legislative, legal and regulatory support for the rationale. That rationale is the fundamental difference between a business model that is designed and constructed to distribute products as opposed to a business model designed to, as much as is humanly possible, as the Supreme Court expressed, deliver competent and objective advice. Their comments, in our view, reject ‘the moral purpose,’ quote/unquote, behind the securities laws that followed the depression, and our forefathers and foremothers, so to speak, have set out in fiduciary care. Their comments reject fiduciary advice as developed as a code of ethics or conduct, as envisioned by Franklin Roosevelt, literally some 90 years ago.”

Tim Keehan, senior vice president of asset management for the American Bankers Association

“A more thorough vetting is particularly appropriate for this proposal, which ABA believes is overbroad and overreaching by capturing many persons who provide valuable services to individuals, plans and plan fiduciaries, but who should not be viewed as a fiduciary under either ERISA or the Internal Revenue Code. If adopted in its current form, the proposal will likely harm the very plan participants, beneficiaries and IRA account owners that the Department is seeking to protect by making it extremely difficult, complex and costly for banks to make available and deliver the products, services and information necessary for persons to achieve a financially sound retirement.”

Benjamin Edwards, professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas

“One general rule of thumb that you should always remember in this context is that, the bigger the commission or the bigger the payout on a particular product for the person selling it to an investor, the less good it is likely to be for the investor, or the terms are not as likely to be as generous. And the idea here is simply that money being used to pay the commission has to come from somewhere. So in a situation like we see today where you have an enormous amount of fixed indexed annuities or other products being sold, sadly the current best-interest regulation from the National Association of Insurance Commissioners doesn’t even treat that as a conflict, even though that is the reason why people want to sell those products over other products, because, if they don’t, they’ll get pushed out of the industry by people who make the money — the people who actually do sell the conflicts with the kickbacks and the commissions.”

Brian Graff, CEO of the American Retirement Association

“Under the current federal and state regulatory framework, most small business owners doing the right thing for their employees are often provided zero — let me repeat — zero regulatory protection with respect to the advice given to them regarding plan investment options. As we look to increase small business retirement plan coverage, it is critical we address this regulatory gap. The 1975 regulatory definition of ‘investment advice’ is ill-suited for advice to plan sponsors with respect to participant-directed 401(k) plans that didn’t even exist in 1975. Under ERISA, a small business owner is subject themselves to ERISA’s fiduciary standard when selecting a provider of plan investment options. Since a plan sponsor is making decisions on behalf of participants, ARA believes it is absolutely essential, as provided in the Department’s proposed rule, that such a fiduciary plan sponsor be able to rely on the fact that their investment advisor will be subject to the same fiduciary standard of care regardless of whether such advice is just once or on a regular basis.”