Supporters of the Department of Labor’s new proposed fiduciary rule are lobbying to prevent the measure from being delayed or defunded, according to WealthManagement.
The proposal is called the Retirement Security Rule: Definition of an Investment Advice Fiduciary. It would update the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. The rule would impose the fiduciary standard of federal retirement law on most investment advisors, brokers, and insurance agents making recommendations to retirement plans and plan participants and customers in individual retirement accounts. The advisors would be required to adhere to high standards of care and loyalty when making their recommendations and avoid recommendations that favor their financial and other interests at the expense of retirement savers.
The plan has drawn strong opposition from the financial industry, which says it would increase advisors’ regulatory costs and legal exposure, making their advice more expensive and hurting investors.
Investor advocates are concerned that a rider attached to an appropriations bill in the House of Representatives could enable opponents to deny funding to prevent the DOL from implementing a final fiduciary rule.
One advocacy organization, the Consumer Federation of America (CFA), sent a letter earlier this month calling on lawmakers to reject such efforts. Micah Hauptman, director of investment protection at the CFA, told WealthManagement the rider tactic is not appropriate for trying to derail new regulations.
“(Appropriations bills) should be used to fund the activities of agencies,” he said. “They shouldn’t be used as a way to effectively kill policies.”
The CFA sent its letter following a congressional hearing in which opponents urged the use of a rider to stop the fiduciary rule.
Hauptman said the rider proposal is not expected to be adopted in the Senate and would likely be vetoed by President Biden if it ever made it through Congress. But he still expects the rule to be challenged in court.
“I think the industry opponents are leaving no stone unturned,” Hauptman said. “Every potential opportunity they have to kill the rule, they are trying to kill the rule, even if the prospects are not great.”
Supporters of the DOL rule say an update is needed to the current definition of investment advice fiduciary, adopted in 1975, which was written at a time when IRAs were less common and 401(k) plans did not exist,
A public comment period on the proposal was completed at the end of 2023 but a final version of the fiduciary rule has not yet been released.
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