The National Association of Insurance and Financial Advisors, also known as NAIFA, published a response to the passing of the Department of Labor’s new fiduciary-only Retirement Security Rule, criticizing the agency’s fast pace in passing it and saying it disregards consumers’ choices.
“The worst part about the DOL’s hasty and harmful action is that it is completely unnecessary,” NAIFA CEO Kevin Mayeux said in a statement. “The abbreviated public comment period and lack of engagement were clear indications that the White House and DOL were merely going through the motions and had no intention of seriously considering our input.”
The current iteration of the fiduciary rule was first proposed last November. The comment period ended on January 2 of this year, and in March, the DOL sent the final version of the rule to the Office of Information and Regulatory Affairs. The rule was approved by OIRA on April 10 and published to the Federal Register today. It will go into effect on September 23, 2024.
According to the Biden administration, the rule closes a perceived retirement advising gap.
Under the old rules, one-time recommendations, like those given by advisors to clients on retirement rollovers, were not required to meet a fiduciary standard set under the Employee Retirement Income Security Act (ERISA), the federal law governing retirement plans.
However, the rule now requires that advisors must “avoid recommendations that favor the investment advice providers’ interests — financial or otherwise — at the retirement savers’ expense” and that financial institutions that oversee investment advice providers “must have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.”
“America’s workers and their families rely on investment professionals for guidance as they save for retirement,” Acting Labor Secretary Julie Su said in a statement. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”
Some professional organizations, like CFP Board, the group in charge of wealth management’s most popular designation, have spoken out in favor of the rule.
“The DOL’s final rule addresses regulatory gaps and helps protect Americans from the costly effects of conflicts of interest by requiring financial professionals to provide retirement investment advice in their clients’ best interest,” CFP Board said in a statement.
However, NAIFA believes the rule will have a chilling effect on financial professionals and their clients.
“The rule will force the vast majority of financial professionals offering retirement planning services and products into a fee-for-service model,” NAIFA said in a statement. “It will deprive consumers of the valuable option of working with professionals operating under alternative models that may better meet their needs.”
“NAIFA supports all business models skilled financial professionals use to serve their clients,” Mayeux said in a statement. “A brokerage model with commissions works very well for many consumers while others are better served by fee-based models. The new DOL rule would restrict the ability of consumers to choose.”
Mayeux also said that more than 90 percent of NAIFA members believe the rule would “significantly increase their costs and costs for their clients.”
NAIFA also critiqued what it saw as an unnecessarily expedited process that ignored industry insiders’ comments.
“The DOL provided a comment period for the rule that was significantly shorter than the comment periods of similar proposed rules, and DOL denied a request for an extended comment period,” wrote NAIFA. “The DOL also ignored a request from eight Democratic members of the Senate to extend the comment period. The DOL finalized the rule in 66 days. This was the shortest rulemaking period, by far, in the past 15 years for a retirement rule that remains in effect. The next shortest period was 110 days.”
According to the DOL, the rule is for the benefit of the American people.
“The rule also ensures investment professionals can compete for business on a level playing field, instead of being hindered by a skewed system in which different standards exist for advice providers based on the products they recommend,” stated the DOL.
Mayeux promised to continue the fight in Congress and the courts.
“This is not over,” he said. “NAIFA, along with our coalition partners, will continue to advocate on behalf of effective and flexible retirement-planning options for the American public.”
