This spring carries the undying hope of consumer advocates that elements of the Obama-era fiduciary rule can be resurrected, closing loopholes they say expose retirement funds to commission-seeking salespeople.
More than three dozen organizations sent the Department of Labor a letter last week demanding an investment rule that would eliminate exemptions that allowed the sale of commission-based products (“in conflict”) with retirement money . They’re asking for something more in line with the Obama-era divisive advice rule, which was thrown out by a court and blocked by congressional action.
The Trump administration replaced it with the Investment Advisory Rule, which exempts one-time transactions from ERISA requirements. One-time transactions are not considered investment advice under the “regular” part of the 1975 five-part test that was reinstated by the Trump rule.
“The current regulatory regime with its five-part definition of ‘fiduciary advice’ makes it easy for providers of retirement investment advice to avoid fiduciary liability even when retirement savers rely on them as trusted advisers,” according to the letter, signed by consumer groups. such as the Consumer Federation of America and AARP, as well as interest groups and unions such as the Airline Pilots Association International.
They said “loopholes” in the current rule allow unsuspecting consumers to be sold insurance annuities and other “financially damaging” assets such as gold, bitcoin or collectibles.
“We see no justification for providing ERISA fiduciary protections only to advice given regularly, while leaving other equally and potentially more consequential advice uncovered,” according to the letter.
Supporters will likely get some of what they’re looking for, because while the Biden administration allowed the Trump-era rule to continue, it hasn’t started enforcing it and is expected to replace it this year. maybe by summer.
Meanwhile, insurance trade groups are pulling the other way, suing the DOL because they say the investment advice rule wrongly imposes a fiduciary-like standard on insurance professionals in dealings. punctual. The rule requires sellers to create processes to ensure they are acting in their customer’s best interests and to keep documentation proving they have done so.
The lawsuit claims that the DOL overstepped its authority with the current investment advice rule, postponing “the central problem that the Fifth Circuit identified in striking down the fiduciary rule the first time around,” adding that “pouring the same old wine into a new bottle does not change the result.”
Modification of the exemption
Consumer advocates said the Obama-era fiduciary rule instituted in late 2016 was effective, though it never really took effect due to delays under the Trump administration. The letter’s authors said insurers were selling less of inferior and expensive annuities because sellers were giving investors’ interests more weight.
The letter asks the DOL to close loopholes in the definition of “fiduciary investment advice” to align with the letter and spirit of ERISA. Proponents also want a better definition between investment advice and education, as “retirement investment providers have long sought to avoid application of the fiduciary standard by labeling advisory materials that pension investors reasonably believe be fiduciary advice, such as “investment education”.
Most of the requests focus on the 2020-02 Prohibited Transaction Exemption, which advocates say does not actually require sellers to put consumers’ interests first.
The group wants the DOL to amend PTE 2020-02 by:
• Require financial institutions or investment professionals to monitor ongoing investment relationships, “even if, as we urge, the Department removes the element ‘on a regular basis’ from the definition.
• Strengthen the requirement for written disclosure of services and conflicts of interest arising from services and any recommended investment transactions. The lawyers said that while the disclosures may be based on the Securities and Exchange Commission’s Best Interests Regulation Standard and the National Association of Insurance Commissioners Model Rule, there is no evidence that they are effective.
• Define the timing of conflict disclosure, which is required before entering into the transaction. Advocates say the rule doesn’t specify how much time consumers should have to review the disclosure or even that sellers discuss the disclosure with consumers to ensure they understand. “These disclosures convey important, but inherently complex, information, so they should be made well in advance of an investment transaction being executed to minimize the risk of an uninformed decision,” the letter said.
• Elimination of the self-correction provision of the exemption. Instead of self-monitoring because sellers would be able to correct mistakes, the regulations encourage lax oversight because when violators are discovered, they know they can “self-correct” and escape. to penalties. “The Department should retain discretion to grant relief only where the violation is minor, manifestly unintentional, and promptly corrected.”
Steven A. Morelli is editor for InsuranceNewsNet. He has over 25 years of experience as a journalist and editor of newspapers and magazines. He was also vice-president of communications for an association of insurance agents. Steve can be reached at [email protected]
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