By:  Brian Croce
Source: Pensions & Investments

Fiduciary rule's demise prompts call for review

Two leading Democrats want the Government Accountability Office to examine the impacts of a federal court vacating the Department of Labor's fiduciary rule last year.

Sen. Patty Murray, D-Wash., ranking member of the Senate Health, Education, Labor and Pensions Committee, and Rep. Bobby Scott, D-Va., chairman of the House Committee on Education and Labor, wrote Friday to GAO Comptroller General Gene Dodaro with the request.

"In the past year, DOL appears to have done little, if anything, to warn retirement savers that they are now vulnerable to professionals who, according to DOL, have no obligation to put their clients' interest before their own," the letter stated.

In March 2018, the 5th U.S. Circuit Court of Appeals in New Orleans vacated the Obama-era DOL rule, which required brokers to act in the best interests of their clients in retirement accounts, on the grounds that it represented regulatory overreach. The Department of Justice, on behalf of the DOL, did not file a motion to appeal the decision so it died in court on June 21, 2018.

One year later, the Democratic legislators are asking GAO to address question including:

  • For those firms that initiated efforts to comply with the DOL rule prior to the 5th Circuit's decision, how did their product line, compensation structure and compliance costs change during this period?
  • To what extent have those entities who assumed a fiduciary role continued to act as fiduciaries after the rule was vacated in 2018?
  • To what extent have those entities who assumed a fiduciary role decided not to act as fiduciaries after the rule was vacated?
  • Why did these entities choose their specific path?

The new SEC passed a standards-of-conduct package June 5, but the rules do not affect retirement plans, except some small 401(k) plans served by brokers, according to attorneys who have reviewed the regulation. But financial professionals who provide advice to retirement plan participants, including rollover recommendations, are subject to the new rules.

In its fall regulatory agenda, the DOL said it is "considering regulatory options in light of the (5th) Circuit opinion," with a final rule expected by September.