A diverse coalition of organizations is urging the Department of Labor to update its fiduciary rule and follow through on expected changes to last year’s fiduciary exemption, arguing those changes are needed to “protect retirement investors from investment advice tainted by conflicts of interest.”
The groups signing on to the March 15 letter to Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar include consumer protection advocates like the Consumer Federation of America (CFA), Better Markets and the Public Investors Advocate Bar Association (PIABA), as well as behemoths like the AFL-CIO and the American Federation of Teachers.
The signees are worried that the current rules leave too many loopholes for advice providers to avoid fiduciary responsibilities.
“The current rule allows for conflicted investment advice that puts the retirement savings of millions of Americans at risk and is inconsistent with the letter and spirit of ERISA, the statute whose purpose is to promote the retirement security of workers and retirees,” Micah Hauptman, CFA’s director of investor protection, said about the contents of the letter.
In 2018, the 5th U.S. Circuit Court of Appeals vacated the Obama administration’s original fiduciary rule for retirement advice, with the Trump administration releasing its own proposal in summer 2020. That new rule included exemptions to fiduciary conduct as long as providers adhered to “impartial conduct standards” modeled after the SEC’s Regulation Best Interest. The rule went into effect in February of last year, though enforcement was delayed through early 2022.
Khawar said last February that further guidance would be forthcoming, and the potential for further rule-making was included on the Labor Department’s spring regulatory agenda last year, but as of yet nothing has been sent to the White House for review, according to the new letter.
Critics from the opposite direction are currently waging another legal challenge unfolding in the 5th Circuit, targeting the rule’s newest iteration. In the suit, the Federation of Americans for Consumer Choice argued the new interpretation of the “five-part test” to broaden the definition of an “ongoing” client/provider relationship (thus potentially expanding the breadth of ERISA%
