Big Names Back Latest Proposed Fiduciary Rule

While many financial services firms and related trade groups have expressed their opposition, several high-profile firms have come out in support of the latest iteration of the Department of Labor’s (DOL) proposed fiduciary rule, officially known as the "Retirement Security Rule: Definition of an Investment Advice Fiduciary."

According to the department, the proposal would specify when fiduciary status is given to a person who provides investment advice for a fee to a participant in a workplace retirement plan (such as a 401(k) plan), an individual retirement account, or other type of retirement plan.

Aggregation firm HUB mirrored certain arguments made by the American Retirement Association in its comment letter supporting the rule (with suggested changes), specifically mentioning the current regulatory gap concerning one-time recommendations to plan sponsors that are not considered fiduciary advice.

“This gap is usually found in the small business market, where plan sponsors do not have the resources or financial expertise in constructing a retirement plan and investments for their employees,” Joe DeNoyior, President of HUB’s Retirement and Private Wealth division, wrote. “They rely on service providers or salespersons to provide recommendations and essential information about the plan and its investments. Whether these interactions occur once or on an ongoing basis should not make a difference whether the advice given is fiduciary or not.”

Fidelity also hit upon the consistent application of a fiduciary standard, regardless of whether the plan is large or small.

“We agree with the goal of applying a consistent set of standards and rules for persons that engage in investment advice to retirement investors as part of a relationship of trust and confidence, and we appreciate the Department’s efforts to align the Proposal with the rules, requirements, and interpretations of financial services regulators,” James Barr Haines, Senior Vice President and Deputy General Counsel, wrote. “We also support the commonsense expansion of PTE 2020-02 to include self-led online advice interactions.”

Morningstar, for its part, focused on the reduction in fees it said the rule would bring.

“In this comment letter, we lay out supporting analysis to quantify the potential benefits of this rule in two areas: 1) the reduction in fees that retirement investors would pay when they save through workplace retirement plans, and 2) the reduction in implicit fees investors would pay when rolling over to fixed index annuities,” Aron Szapiro Morningstar’s Head of Government Affairs, wrote. “We believe that there will be benefits to retirement investors in other areas, but these two are the most important on which to focus.”

And Vanguard agreed that investors should receive investment advice in their best interest but recommended that the DOL “clarify education and personalized communications of general investment principles (e.g., suggestions to increase contributions to receive an employer match or to diversify investments) targeted to particular retirement investors are not considered recommendations in the absence of a specific call to action based on the individual needs of the investor.”

American Retirement Association (ARA) CEO Brian Graff testified in support of the proposed rule in December, also highlighting “the significant regulatory gap” regarding plan-level advice to small businesses.

“Investment advice given to small business plan sponsors is also not protected by SEC’s Regulation Best Interest because ‘plan-level’ advice is considered ‘institutional advice,’ even if we are talking about an unsophisticated small business owner with just two employees,” Graff said, before adding that the SEC told the ARA it believed such advice belonged within DOL’s jurisdiction.

He emphasized that under the current federal and state regulatory framework, most small business owners trying to offer a retirement plan to their employees are often provided no regulatory protection from the advice they receive regarding plan investment options.