The Department of Labor’s proposed new fiduciary rule has moved a step closer to final approval, according to a Financial Advisor report.
The White House Office of Management and Budget said it completed its review of the rule last Wednesday.
The DOL’s rule would update the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. It 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 rule would also apply to one-time advice and variable annuities recommendations. 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.
With OMB’s review done quickly, industry experts said the rule will move toward completion before the possibility that it could be overturned if Republicans were to take over Congress next year.
“The DOL has been pushing hard to get this rule out the door before it becomes vulnerable to vacatur under the Congressional Review Act [CRA] next year if Republicans gain control of Congress and the White House,” said policy consultant Duane Thompson, president of Potomac Strategies LLC. “Once the final Retirement Security Rule is published, like the 2016 version expect a flood of lawsuits filed immediately by industry opponents to overturn it. They could also use the legislative process this year, but a CRA resolution would have little chance of surviving a Biden veto.”
Supporters and opponents have been weighing in on the plan during a 60-day period for public comments along with a two-day public hearing, and meetings with OMB officials. 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.
Recently a group of House Democrats asked the Department of Labor, OMB, and the Administrator of the Office Information and Regulatory Affairs to expedite the review process, saying the rule “will strengthen critically needed guardrails and protect working families and retirees from conflicted financial advice by self-serving financial professionals regarding employee-sponsored retirement plans.”
OMB completed its review of the plan in about one month, leading some to say the process was rushed. “OMB’s swift conclusion in its review of this fiduciary rule gives rise to serious questions as to whether the agency has extended due consideration to stakeholder input and allowed their views to be fully heard and accounted for in this process,” said Rep. Virginia Foxx of North Carolina.
Experts say it is likely that the final rule will be made public by the end of April and then be published in the Federal Register. After being published, it will take effect 60 days later. Legal challenges are expected to be filed by opponents in the financial industry.
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