The US Department of Labor's proposed fiduciary rule could have "significant repercussions for the insurance regulatory framework" and an adverse impact on consumers, Iowa Insurance Commissioner Doug Ommen said during a Feb. 15 congressional hearing.
The Labor Department's proposed fiduciary rule would impact how retirement products are sold by updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. It also seeks to reduce what the Labor Department calls "junk fees" that customers pay when buying retirement products.
Ommen used his time testifying before the House Subcommittee on Health, Employment, Labor and Pensions to express his concerns with the Labor Department's proposed rule and criticized the department for its lack of "substantive engagement" with state insurance regulators before the rule's release.
"Given the retirement savings gap, the Department of Labor should be encouraging, not limiting access to well-regulated retirement guidance and products, such as annuities," Ommen said before the subcommittee.
Questioning a fiduciary-only approach
By his own description, Ommen was closely involved with the development and adoption of the National Association of Insurance Commissioner's Annuity Suitability "Best Interest" model rule, which is one of the regulations that opponents of the Labor Department's fiduciary rule cite as already providing adequate consumer protection.
In the process of creating that model rule, Ommen said the NAIC had studied whether a fiduciary-only approach like the Labor Department is proposing would make sense.
"While we did consider a fiduciary approach, we found a fiduciary-only standard would restrict consumers from cost-effective access to the financial security products they need," Ommen said.
Ommen went on to say that the Labor Department's proposed rule in fact "goes in the opposite direction" of trying to close the retirement savings gap that exists in the US.
Congressional divide
Rep. Bob Good (R-VA), who serves as chairman of the subcommittee, concurred with the vocal industry opposition to the Labor Department's proposed rule, saying he believed it would have a "disastrous impact" on the retirement products and services industry.
Good called the rule a "classic case of heavy-handed regulatory overreach by the Biden administration" and pointed out that past attempts by the Labor Department to pass a fiduciary rule resulted in the elimination or reduction of brokerage advice services.
"We know this rule will negatively impact millions of Americans' ability to receive the investment advice that they need," Good said. "I urge the Department of Labor to take note of our hearing and withdraw the rule."
On the flip side, Ranking Member Rep. Mark DeSaulnier (D-CA) spoke in favor of the Labor Department rule, disparaging financial advisors who provide "conflicted advice" such as steering a client toward a product with high fees because it benefits them.
"Bad actors can get away with providing conflicted advice because the primary DOL regulation which dates back to 1975 is riddled with loopholes," DeSaulnier said. "Neither the SEC's Regulation Best Interest nor the NAIC model rule are sufficient to address the problem."
Joseph Peiffer, president of the Public Investors Advocate Bar Association, testified during the hearing and specified the gaps in protection that he believes exist under the current regulatory rules but would be covered with the Labor Department's proposed rule.
Peiffer also said the NAIC's model rule fails to cover compensation as a conflict, noting that compensation is the "number one conflict" that advisors have with their customers.
"The Biden administration's retirement security rule levels the playing field and will ensure that workers, retirees and retirement plan sponsors receive advice that is in their best interest," DeSaulnier said.
This was the second hearing hosted by a US House of Representatives committee regarding the Labor Department rule since it was released. A partisan divide was evident in this hearing, while in the prior hearing, members from both sides of the political aisle were more critical of the Labor Department's proposal.
