DoL proposes a fiduciary rule replacement that would buttress SEC’s Reg BI

Eugene Scalia, secretary of labor, speaks during a Senate Finance Committee hearing in Washington on June 9, 2020. The hearing is to examine unemployment insurance during the Covid-19 pandemic focusing on the CARES Act. Photographer: Caroline Brehman/CQ Roll Call/Bloomberg
Eugene Scalia, secretary of labor, speaks during a Senate Finance Committee hearing in Washington on June 9, 2020.
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The Department of Labor, now led by the attorney who spearheaded the charge to vacate the fiduciary rule two years ago, is rolling out a replacement for the defunct regulation.

The proposed rule governing advice in retirement accounts is a nod to the SEC’s Regulation Best Interest, with which the Labor Department says it will align its rulemaking. The agency’s proposal will adhere to a best interest standard and provide Americans with “more choices for investment advice arrangements,” Secretary of Labor Eugene Scalia said.

The proposal “would add to the tools individuals need to make the right decisions for their financial future,” Scalia said in a statement. It will be published in the Federal Register for notice and comment in the near future, according to the department.

It’s a sign of how the tables have turned since the Labor Department under President Obama first proposed a fiduciary rule in 2015 to require brokers and advisors to put clients’ best interests ahead of their own when providing investment advice in retirement accounts.

The 2016 rule was challenged by several lawsuits. Scalia, now the secretary of labor, was an attorney representing plaintiffs in the lawsuit that successfully vacated the rule. Those plaintiffs included the U.S. Chamber of Commerce, FSI and SIFMA.

The SEC has since promulgated its own advice standard, Regulation Best Interest, which is not a fiduciary rule, but a so-called best interest standard. It relies heavily on disclosure.

The SEC regulation survived a federal court challenge just prior to its June 30 enforcement date, though the plaintiff in that case — XY Planning Network — could appeal the ruling at the Supreme Court.

The Labor Department’s proposal “would authorize a wide range of investment advice models and relationships,” Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson said in a statement.

The proposal “would be broadly available to investment advice fiduciaries who adhere to a best interest standard and plainly inform retirement investors that they are acting as fiduciaries when making investment recommendations,” Wilson said.

As the industry pushed to comply with the fiduciary rule, new issues emerged.
June 23

Wall Street lobbying groups, including some who participated in the lawsuit to vacate the fiduciary rule, welcomed the Labor Department’s announcement. SIFMA Chief Executive Ken Bentsen applauded the department’s alignment with the SEC, saying it would help ensure “compliance efficiencies.” FSI’s CEO, Dale Brown, said his organization was “hopeful” the Labor Department would achieve the same balance as Reg BI between increased transparency and consumer choice.

American Council of Life Insurers CEO Susan Neely echoed those sentiments on regulatory alignment, adding that retirement savers will also maintain “access to choices in the retirement products they want and need, such as annuities.”

But to be sure, if the history of the Obama-era fiduciary rule is any guide, the current Labor Department proposal may not last long. Court challenges could undo it. And should Democrat Joe Biden become president in January, then he could restore the Obama-era regulation or go a step further and push for a uniform fiduciary rule across all investor accounts.

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Fiduciary Rule Fiduciary standard DoL SEC Regulation Best Interest Regulatory guidance SIFMA FSI Retirement planning 401(k)