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Charles Schwab asks Department of Labor to withdraw fiduciary rule proposal

On Behalf of | Jan 16, 2024 | Firm News

Charles Schwab has asked the Department of Labor to withdraw its proposal that would revise the definition of an investment advice fiduciary, according to Financial Advisor.

The DOL made the proposal in November under the Employee Retirement Income Security Act. It would apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and others.

The DOL said its proposal would “require trusted investment advisers to adhere to high standards of care and loyalty when they make investment recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.”

In a comment letter to the DOL earlier this month, Schwab said the proposal exceeds the authority of the Department of Labor and would make financial advice less available.  Peter Morgan, Schwab’s general counsel and managing editor, called the plan “a solution in search of a problem,” and called it “wrong as a matter of law and policy.”

The DOL’s proposal would ensure that financial advisors, brokers and insurance agents be held to the fiduciary standard on rollover IRAs.  The standard would also apply if the financial advisor recommends investments or receives any compensation, as well as if the investors “would reasonably expect” to receive advice guided by their best interests, according to the DOL fact sheet.  Advisors would also be required to give investors written analysis supporting their investment recommendations.

But Morgan said the plan is destined to meet the same fate as a 2016 proposal rejected by the U.S. Court of Appeals for the Fifth Circuit. He said the court ruled that a one-time IRA rollover is not fiduciary advice.

“We respectfully urge the Department to withdraw its proposal, rather than embark on an ill-fated sequel to its 2016 rulemaking in this area.”   He went on to say, “The Department again defines ‘fiduciary’ in an expansive manner that draws in countless circumstances where there is no relationship of trust and confidence.”

The DOL denied a request by Schwab and other opponents to extend the public comment period on its proposal.

A hearing will be held this week by the House Financial Services Capital Markets Subcommittee to evaluate the impact of the department’s proposal on access to retirement savings.

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