The US Department of Labor's proposed fiduciary rule, which would impact how retirement products are sold, drew criticism from both sides of the aisle during a congressional hearing today.
Republican members of the House Financial Services Subcommittee on Capital Markets urged the Labor Department to toss the proposal while Democrats used softer language and suggested improvements be made.
Rep. Ann Wagner (R-Mo.), who serves as chairman of the subcommittee, noted that the Labor Department has made multiple attempts since 2010 to pass regulation that would "disrupt" the client-adviser relationship.
"I have been pushing back against this misguided effort ever since I came to Congress in 2013," Wagner said. "This latest proposal is yet another bite at the same rotten apple; it should be withdrawn immediately."
A case for withdrawal
Opponents of the Labor Department's plan have largely said the proposed regulation is beyond saving with improvements and instead should just be tossed.
The proposed retirement security rule released Oct. 31, 2023, updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act and would also lower what it calls "junk fees" that consumers pay when purchasing retirement products.
Earlier this week, 50 members of the House of Representatives sent a bipartisan letter to Julie Su, acting Labor secretary, and Lisa Gomez, assistant secretary of the Employee Benefits Security Administration, to express concern with the Labor Department's proposed rule.
"We urge DOL to cease its efforts to adopt this proposal in order to prevent needlessly inflicting harm on millions of retirement savers across the country," the letter said.
The department had released a proposed fiduciary rule several years ago that never quite came to fruition. The rule was partially implemented in June 2017, but a full rollout was delayed, and the US Court of Appeals for the 5th Circuit completely vacated the rule in March 2018.
Many opponents to the proposed rule say it is too similar to the previous version that did not hold up in court. Rep. Bill Huizenga (R-Mich.) said during the hearing that the plan is like "groundhog day" and expressed confusion over the legality of the rule.
"Where the hell are the lawyers giving the DOL, much less the SEC, advice that they're coming back at an issue that the courts have already ruled on," Huizenga said. "I do not understand how they can look at what has come out of the courts and take another run at this."
Meanwhile, Rep. Bryan Steil (R-Wis.) criticized the Biden administration for its commitment to "fast-tracking" the rule and suggested that the Administrative Procedure Act, which he said requires federal agencies to refrain from prejudging the results of a comment period, has been violated.
"[President] Biden openly endorsed the proposal exactly as it was proposed on the day it was proposed," Steil said. The congressman also pointed out that the 60-day comment period, which ended Jan. 2, took place during "the height of the holiday season." The Labor Department's December 2023 hearings were conducted before the end of the comment period.
Opponents of the rule argue that there are no unnecessary "junk fees" in retirement products nor any consumer protection gaps to fill.
"The Department of Labor's proposal is a solution in search of a problem," Wagner said.
A case for regulation
Rep. Brad Sherman (D-Calif.), who serves as ranking member of the subcommittee, said the regulation has people who love it as well as people who hate it and that he is somewhere in between.
"The fact is that we need to improve this regulation, but I think ultimately we need a regulation in this space," Sherman said.
Sherman pointed out that there are already "best interest regulations" that cover a lot of financial products but guaranteed insurance products, for example, fall to state regulation.
The National Association of Insurance Commissioners (NAIC) made revisions to its Suitability in Annuity Transactions Model Regulation in February 2020 to incorporate a "best interest" standard. That standard requires all recommendations by agents and carriers to be in the best interests of the consumer and that consideration of the consumers' interest must always be placed ahead of any financial interest that the agent or carrier could have in the transaction.
However, not all states have adopted the NAIC's 2020 updated model law.
"I'm concerned when there are 10 states that don't follow the NAIC models," Sherman said. "We ought to require the best interest of the investor to be protected, and we've got some loopholes to fill."
