Bill to kill fiduciary rule heads for full congressional vote

By Doug Bailey

A bill to kill the Biden Administration’s new fiduciary rule is headed for a full vote in Congress after two committees this week resoundingly approved it. But the rule, intended to clarify when financial professionals must act in the best interest of their clients, may die regardless of what legislators decide, thanks to the Supreme Court.

In April, the U.S. Department of Labor published the Retirement Security Rule redefining who qualifies as a fiduciary under the Employee Retirement Income Security Act. The rule covers cases where investors save for retirement through a workplace retirement plan, such as a 401(k), or an IRA. The rule presents a new process to define who qualifies as a fiduciary and hones in on the relationship between the advice provider and the investor. Bottom line: Anyone who holds themselves out as a trusted advisor when giving advice will become an investment advice fiduciary, meaning they must put the investor’s interests ahead of their own. The DOL said the rule would limit conflicts of interest and close loopholes.

Though by some measures the rule could save retirement plan participants $55 billion in fees over a decade, and another $32 billion for those who choose to roll over their plans into annuity products, the rule was vehemently attacked from all sides. Industry groups said the the rule would add bureaucratic complexity to financial advice; elected officials accused the Biden Administration of regulatory overreach; and even consumer groups waged legal challenges to the well-intended rule.

Rule would create 'significant hardship'

“The final rule creates significant hardships for today’s workers and retirees, making it much more expensive and complicated – and for many consumers, impossible – to access reliable professional guidance,” Insured Retirement Institute President and CEO Wayne Chopus said in a statement.

“Sound financial advice when preparing for the future should be an easily accessible resource for hardworking Americans, not a bureaucratic nightmare,” said Rep. Rick Allen who, along with two other legislators, introduced a joint resolution of disapproval under the Congressional Review Act to quash the DOL rule. “By muddying the waters with burdensome overregulation, the Biden DOL’s finalized fiduciary rule does more harm than good to the very people it is claiming to protect – retirees and savers.”

The rule was intended to be put in place by January of 2025 but that looks unlikely. On Wednesday, the House Education and Workforce Committee passed by a 23-18 vote a Congressional Review Act resolution to disapprove the new fiduciary rule. Separately, the House Appropriations Committee also approved by a 31-25 vote the Fiscal Year 2025 Labor, Health and Human Services, Education, and Related Agencies bill. The legislation would prevent Labor from using any funds to administer, implement or enforce the new fiduciary rule and related prohibited transaction exemptions. Both acts are headed to full votes in Congress.

'Unintended consequences' warned

“The rule could disrupt the financial advisory business model, leading to unintended consequences that may ultimately harm consumers rather than protect them,” says Justin Haywood, president and co-founder of Haywood Wealth Management, in Houston.

Haywood notes that critics believe the rule imposes major compliance costs on financial advisors and firms, which could potentially raise costs to consumers.

“There is also a concern that the rule could limit access to financial advice for smaller investors,” he says. “Advisors may become more selective in the clients they serve, focusing on higher-net-worth individuals to offset the increased costs.”

Broker dealers believe the new rule will bring more legal exposure and fiduciaries argue that the regulation dilutes the standards to appease and compromise with the broker dealers.“The ends do not justify the means,” said Kelly Gilbert, owner of EFG Financial in Grand Rapids, Michigan. “While a fiduciary standard is a good thing, the way the government is trying to impose it is not. For instance, a national ad campaign to educate Americans on the benefit of fiduciaries would produce the same result, whereas this rule is just another government overreach attempt with unintended consequences.”

Biden expected to veto efforts to quash fiduciary rule

It’s almost certain that President Biden will veto efforts to quash the fiduciary rule if it lands on his desk. But that likely won’t be the end of it.

For nearly 40 years, the so-called Chevron legal precedent, which directed the courts to defer to an agency's reasonable interpretation of an ambiguous statute that it administers. was a powerful tool that administrative and executive agencies used to promulgate its rules and regulations. That changed last month when the Supreme Court overturned Chevron.

“With Chevron overturned, opponents of the fiduciary rule may find themselves arguing that Congress clearly governs this scope of rules affecting retirement plans and the DOL has overstepped its enforcement authority by interpreting the statute as it sees fit,” said Ryan Brown, parter at CR Myers and Associates, in Southfield Michigan. “With Chevron gone, opponents of these regulations have now been given a new arrow in their litigation quiver.”

Still, many others continue to see the need for greater transparency and disclosure for financial advisers that they believe the Fiduciary Rule will encourage.

Stephen Akin, the founder of his own investment advisor firm in Charleston, South Carolina, said he started his firm to be a true fiduciary. He sells no insurance products or investments. He never takes custody of client funds or securities. His only interest, he said, is his clients.

“The rule was created to encourage full disclosure of conflicts of interest and alert consumers that registered representatives are ‘salespeople,’” Akin said. “They are held to client best interest by ‘Know your client rule.’” The best interest rule requires firms to fully disclose in plain language any conflicts of interest.

The new rule goes further than the “Best Interest" rule. I talk with people all day and it is something that the public does not understand. Then I show them headlines of major firms paying [Financial Industry Regulatory Authority] or SEC fines.”

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at doug.bailey@innfeedback.com.