WASHINGTON (Legal Newsline) - The public comment period on the substance of the U.S. Department of Labor’s controversial fiduciary rule and President Donald Trump’s February directive ended Monday, with at least one group calling for the rule to be withdrawn altogether.
All public comments on the DOL’s new rule were due by 11:59 p.m. Monday.
The deadline was the second of two.
In March, the DOL said it would move forward -- under the direction of Trump -- with efforts to delay the April 10 applicability date of the rule.
The department released its final rule in April 2016. The rule mandates financial professionals who service individual retirement accounts, including IRAs and 401(k) plans, to serve the “best interest” of the savers and disclose conflicts of interest.
Earlier this month, the department released a measure officially delaying the implementation of the rule and its related exemptions by 60 days. The applicability date is now June 9.
Written disclosure requirements and the full best-interest contract, or BIC, exemption are still scheduled for Jan. 1, 2018 implementation, according to the DOL.
The DOL’s proposed delay was published in the March 2 edition of the Federal Register. The department said it would accept public comments on the proposed extension for 15 days following its publication. Those comments were due March 17.
Comments on issues raised in Trump’s Feb. 3 memorandum would be accepted for 45 days, the DOL said. In his order, Trump directed the department to review the rule and determine whether it may “adversely affect” the ability of Americans to gain access to retirement information and financial advice.
The Washington Legal Foundation, a public-interest law firm and policy center that claims to advocate for free-market principles, limited government and individual liberty, filed its comments last week.
WLF, in its nine-page letter to the DOL, argues the department should abandon its “failed experiment,” calling the rule “overly expansive” and “unconstitutional.”
The foundation’s comments focus on the lack of discretionary authority the department has in redefining the scope of “investment advice” under federal law.
The Employee Retirement Income Security Act of 1974, also known as ERISA, and the Internal Revenue Code identify just three ways a person can become a fiduciary.
WLF contends the DOL’s new definition expands “fiduciary” to effectively include broker-dealers, their registered representatives, insurance companies and their commission-based sales agents, subjecting all of these persons to federal conflict-of-interest duties for the first time.
Sweeping all of these people under the umbrella of the department’s new definition distorts the meaning of “investment advice” and contradicts 40 years of statutory interpretation and common law understanding, the foundation argues.
WLF also contends the rule cannot withstand either strict or intermediate levels of scrutiny required by a regulation that constricts speech.
“Rather than increasing access to valuable investment education and expanding consumer choice, this rule will make it more difficult for America’s workers and retirees to receive quality advice about their investment options,” said Cory Andrews, senior litigation counsel for the foundation and one of the authors of the letter.
The Financial Services Roundtable didn’t go as far in its comments to the department, submitted Monday. Instead, it urged the DOL to review new studies and marketplace developments as the department determines its next steps for the rule.
FSR notes that research shows American savers are already facing limited choices, reduced service models and product availability, and increased cost as they save for retirement.
“FSR strongly supports a ‘best interest standard’ but believes it should be implemented without undue complexity or cost so it does not become more difficult for Americans to save for retirement and build wealth,” CEO Tim Pawlenty said.
The financial services lobbying and advocacy organization pointed to research published last week by the American Action Forum, or AAF.
According to AAF, the fiduciary rule “has the potential to increase consumer costs by $46.6 billion, or $813 annually per account, in addition to the $1,500 in duplicative fees for retirement savers that have already paid a fee on their commission-based accounts.”
In addition, AAF’s research revealed that based on a minimum balance requirement of $30,000, the rule could force 28 million Americans out of managed retirement accounts completely.
“Even with a minimum account balance of $5,000, over 13 million would lose access to managed retirement accounts,” AAF’s research found.
In its 32-page letter, FSR notes the varying ways firms have already responded with changes to service models and product availability, including: moving clients to fee-based accounts; eliminating commission-based IRAs; raising investment minimums for commission-based IRAs; eliminating variable annuity products; and excluding certain products from commission-based IRAs, including annuities, mutual funds and exchange-traded funds.
“In light of the adverse impacts on retirement investors, it makes no sense to implement a rule that could be rescinded or at least materially revised in a mere matter of months,” FSR wrote.
“We urge the Department to reconsider this premature determination, and postpone the applicability date of the Final Rule until its consequences and effects can be, and are, thoroughly and fully examined afresh in accordance with the Presidential Memorandum’s criteria.”
The Securities Industry and Financial Markets Association, the largest brokerage industry trade association, also called for more time in its comments to the DOL.
SIFMA, which submitted its letter to the department Monday, called for the DOL to delay the applicability of the fiduciary rule beyond June 9 to allow for a “proper review” of the rule.
“Notwithstanding the industry’s longstanding and continued support for a best interest standard, SIFMA continues to believe the DOL rule will do investors much more harm than good,” said Kenneth E. Bentsen Jr., SIFMA president and CEO.
“As our letters clearly state, the evidence gathered as firms have moved to implement the rule shows the negative consequences of less choice, greater cost and increased legal liability.”
Both SIFMA and SIFMA AMG submitted letters to the DOL. SIFMA AMG members represent U.S. asset management firms whose combined assets under management exceed $30 trillion.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.