The Department of Labor should narrow the scope of its proposed fiduciary definition, revise the proposed rule’s requirements and extend the proposed implementation timeline, according to benefit industry experts who fear the proposed rule will limit choice and block access to retirement planning advice.

The DOL in April released its proposal to amend the regulation governing ERISA’s fiduciary definition. The proposed fiduciary rule aims to expand fiduciary duties to those who provide investment advice. Industry trade groups and associations flooded the DOL with suggested amendments and revisions this week, ahead of the July 21 deadline for comments on the proposed rule.

See also: Fiduciary ‘ambiguity’ is primary concern for advisers

The DOL’s proposed rules on investment advice would make it harder for financial professionals to provide investors with affordable services and products that would help them live independently in their retirement, according to comments submitted Tuesday to the DOL by the National Association of Insurance and Financial Advisors.

“In its current form, the proposed rule presents major — and in some cases insurmountable — obstacles for NAIFA members serving middle-market retail investors,” NAIFA wrote in its comments. “The proposal portends a dramatic shift in the way our members will interact with their clients and conduct their businesses, and a significant increase in the cost of conducting their business.”

“Financial professionals should work in the best interest of their clients when recommending investments to retirement savers,” agrees IRI President and CEO Cathy Weatherford. “But we are deeply concerned that the extensive requirements contained within this proposal would have serious and far-reaching unintended consequences for millions of American retirement savers. This includes limiting consumers’ access to annuity products at a time when we should be encouraging and promoting lifetime income strategies as a source of retirement income that cannot be outlived. The rule should also take into consideration the tremendous value financial professionals offer their clients, leading them to be better prepared for their retirement years.”


As the proposed rule stands, NAIFA states, “nearly all of our members who become fiduciaries will have to alter their current compensation arrangements (for at least some clients and some products) or satisfy a prohibited transaction exemption (PTE). Both options carry significant risk of harm to retail investors.”

NAIFA suggests the risk can be partially mitigated if the DOL addresses several specific points of concern. NAIFA suggests:

  • DOL should narrow scope of the proposed definition of fiduciary “investment advice”
  • DOL should adopt a seller’s exception that applies across all products, services and investors
  • The final rule should include a carve-out for advice on plan design
  • The final rule should allow for meaningful investment education
  • Advisors should be permitted to put reasonable limitations on the scope and duration of the fiduciary relationship

“The proposal is dense, complicated, and confusing,” says NAIFA. “It will take a substantial amount of time and resources for financial professionals and investors to fully digest and become comfortable operating under the Department’s new structure. In the meantime, the proposal threatens to introduce a substantial amount of uncertainty into the marketplace. Presumably, financial institutions will err on the side of caution and adopt overly conservative and restrictive policies and practices, rather than face potential liability for violations of the new rules. As a result, their agents and registered representatives will follow suit. Ultimately, these developments will likely result in a near-term contraction of services and advice.” 
IRI’s Weatherford says “The rule should be restructured in a way that advances retirement security and preserves consumers’ choice on how to plan for retirement, invest their savings, and meet their financial goals,” Weatherford said.

She agrees the proposed definition of a fiduciary is overly broad and IRI recommends the DOL enhance an investment education carve-out as well as add a separate carve-out to accommodate transactions in which there is no reasonable expectation that the advice is fiduciary in nature.

The American Retirement Association also argues in its comments that the current investment education parameters be maintained, including the ability to reference specific fund names in any general communication to plan participants without turning such education into fiduciary advice.

The ARA has also proposed a separate exemption for advisers that provide “levelized compensation advice”, such that retirement plan advisers will not be at a competitive disadvantage in helping participants make critical rollover decisions vis-à-vis advisers who had no previous relationship with the participant in the plan. 

IRI has also requested the DOL’s proposed rule be revised to eliminate some ‘burdensome’ requirements of the Best Interest Contract exemption and make relief under the PTE available to all annuities.

Expanded timeline

Industry experts are also requesting an expanded timeline with which to implement the proposed rule’s new requirements once the rule is finalized.

ARA says “there must be a two-year transition period after publication of the final rule to allow adequate time to transition existing relationships to the new requirements.”

IRI, suggests even more time is needed.

“IRI recommends that the DOL extend the proposed implementation period to three years to ensure that the industry has sufficient time to develop the necessary compliance processes and minimize disruptions to the market and customers.”

The DOL has proposed an eight-month implementation period, but IRI notes the DOL provided service providers two years to implement new disclosure requirements, “which were much smaller in scale,” the group says.

An IRI operational impact assessment conducted by Deloitte & Touche indicated that meeting the requirements and conditions in the proposal will require “massive informational technology redesign and buildouts, which would take several years to complete,” according to IRI’s comments to the DOL.  

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