DOL Critics, Supporters Sound Off on Final Fiduciary Rule

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Following yesterday’s release of the final version of the Department of Labor’s new fiduciary rule, critics and advocates are poring over the 466-page text for changes from last fall’s proposed rule.

One securities attorney sought to assure those advisors working with retail investors that little would change for them, as they’ve long fallen under previous rules’ standards. 

Some found a change from the proposal clarifying that robo-advice should be treated as any other financial advice, while one long-time critic argued the DOL was waging an “ideological crusade” and that he would advise his board to take the department to court.

The DOL’s final rule will go into effect on Sept. 24. Acting Labor Secretary Julie Su said the regulations would protect retirement savers from “improper investment recommendations and harmful conflicts of interest.”

President Joe Biden unveiled the proposed rule last October as part of his administration’s larger fight against so-called “junk fees” in numerous industries. The DOL ran a 60-day comment period, along with a two-day public hearing held remotely in December.

This rule follows previous administrations’ attempts at their own fiduciary rules, including a version by the Trump administration that was dead on arrival in the Biden White House and an Obama-era version vacated in 2018 by the Fifth Circuit Court of Appeals.

Little Change for RIAs

Under current law, advice providers are judged against a five-part test to determine whether they’re investment advisor fiduciaries under ERISA mandates. 

However, most investment advisors offering advice to retail clients on an ongoing basis for compensation have historically met that test, according to Max Schatzow, a co-founder of RIA Lawyers. The new rule likely won’t impact these advisors

“They were probably already investment advice fiduciaries,” he said. “The type of people the old rule did not apply to was a lot of broker/dealers and insurance agents who basically took the position that their advice didn’t meet the five-part test for one reason or another.”

The Labor Department’s jurisdiction extends only to retirement income security with no separate federal rule concerning insurance agents or even brokers/dealers and their standard of conduct beyond Regulation Best Interest. Therefore, if something falls outside the scope of Reg BI, it could fall outside the scope of federal regulation altogether before now, Schatzow said.

Trade Groups Threaten Litigation

However, Marc Cadin, the CEO of the financial services professional trade group Finseca, told the rule stemmed from a “deeply flawed” process; while the DOL had made some “cosmetic changes” from the proposal, the root issues remained.

“This is an ideological crusade by the DOL; they’re not interested in getting it right,” he said. “They believe they know what’s right, and they’re going to impose it on the industry and ultimately on the American people.”

Finseca, along with the Financial Services Institute, the U.S. Chamber of Commerce and others, have criticized the DOL rule (and the rulemaking process) since the proposal was released. Cadin testified before a U.S. House Capital Markets Subcommittee hearing in January and met with the DOL and White House Office of Management and Budget on numerous occasions in the run-up to the proposal and the final rule. 

He also testified during the DOL’s two-day public hearing in December. Cadin said he didn’t receive one question or comment in these meetings or hearings, which he felt signaled the DOL’s disinterest in hearing from those he represented.

“We’ve got real-world expertise based on the work that financial security professionals do every day,” he said. “You don’t have a single question? That’s outrageous.”

Cadin believes the new rule arrived in a different regulatory world than the 2016 Obama rule. In the interim, the SEC passed the Regulation Best Interest rule, and the National Association of Insurance Commissioner created a model rule for annuity protections adopted in more than 40 states. 

What Changed From Last Fall’s Proposal?

Supporters, including the CFP Board, the AARP and the Consumer Federation of America (CFA), celebrated the final rule, arguing it would “close legal loopholes that allowed some advisors to recommend investments with excessive fees and unnecessary risks,” as AARP EVP and Chief Advocacy & Engagement Officer Nancy LeaMond said.

CFA Director of Investor Protection Micah Hauptman flagged differences between the proposal and the final rule that might make it more palatable to its critics, including changes addressing concerns about “overbreadth.” 

Those changes included clarifying that fiduciary status is an objective standard and that such a status would occur when the client and provider “reasonably understand” that the investor would rely on the recommendation for investment decisions. 

In the proposal, the DOL intended to use how advisors market and title themselves in deciding whether to assign fiduciary status, but the final rule clarified that the titles, credentials and marketing slogans would be “a relevant consideration but will not generally be determinative” for the DOL. 

According to Hauptman, the final rule also included a paragraph confirming that sales pitches and investment education can occur without ERISA fiduciary status being attached.


Advisors use the Prohibited Transaction Exemption (PTE) 2020-02 to benefit from compensation if they put clients’ best interests first. According to Hauptman, the proposal excluded robo-advice generated via an interactive website from this opportunity, but the final rule removed this exclusion. 

The proposal also required disclosure on websites as a condition for the exemption, but the final rule removed this, with the disclosure requirements now “more consistent” with Reg BI, he said.

Hauptman’s reading largely echoed the Investment Adviser Association (IAA), which supported the rule and was pleased by some changes, including how the DOL lightened “the documentation burden for some rollover recommendations” and that robo-advice would be treated as other financial advice, according to IAA General Counsel Gail Bernstein.

But Hauptman acknowledged litigation was likely the next front in the skirmish.

“We expect industry opponents who don’t want to or aren’t capable of competing for customers based on the cost and quality of their services will try to defeat these landmark rules in both Congress and the courts, as they did the last time the DOL attempted to strengthen protections for retirement savers,” he said. “This time, however, the industry opponents’ efforts will not be successful.”

What’s next?

Financial Services Institute (FSI) CEO Dale Brown said in January that the group would likely sue the DOL to vacate the rule if it did not withdraw or “substantially” improve the rule (the FSI wouldn’t comment on future moves as of yesterday, with a spokesperson saying they were continuing to analyze the final rule). 

Cadin said Finseca is in a coalition with like-minded groups, including the American Council of Life Insurers (ACLI), the Insured Retirement Institute (IRI) and the North American of Insurance and Financial Advisors (NAIFA). The coalition won’t take any legal steps until each group’s board weighs its options and votes.

“I can’t speak to what other organizations will do because everyone will go through their own process. What I can tell you is what I’m going to recommend as the CEO of Finseca to the board based on our analysis,” Cadin said. “And that is that we should litigate.”

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