Next iteration of DOL fiduciary rule catalyzes lobbying blitz on Capitol Hill

Even though most of the Trump administration’s version of a Department of Labor investment advice regulation went into force a few weeks ago, it’s the next iteration of the fiduciary rule that has catalyzed a lobbying effort on Capitol Hill.

In a surprise move, the Biden administration DOL allowed the Trump fiduciary rule to stand after it took office last year. The regulation provides an exemption to federal retirement law that allows retirement plan fiduciaries to take compensation that would otherwise be prohibited — such as commissions and 12b-1 fees — as long as they act in the best interests of their customers.

The DOL plans to revisit the issue in coming months.

The agency’s regulatory agenda includes a pending proposal to “amend the regulatory definition of fiduciary,” which likely would increase the number of financial professionals who must provide a fiduciary standard of care when providing investment recommendations for 401(k), individual retirement accounts and other plans.

The Trump fiduciary rule replaced an Obama administration rule that was struck down in 2018 by a federal appellate court. Opponents of the Obama rule fear that it essentially will be resurrected.

That sentiment was expressed at a House Education and Labor subcommittee hearing Tuesday on retirement savings. Rep. Tim Walberg, R-Mich., asked a witness, Andrew Biggs, a senior fellow at the American Enterprise Institute, whether the Biden DOL should move ahead with another version of the fiduciary rule.

“It would raise the cost of financial advice for low- and middle-income savers,” Biggs said. “We should stick with what we have [the Trump rule] and see how it plays out.”

The Hispanic Leadership Fund sent a similar message to the subcommittee in written testimony, which featured a study it commissioned that asserts that the Obama rule limited access to brokerage accounts for retirement savers with modest assets.

“If they double down on [the current DOL rule], the wealth for Black and Hispanic families will increase by 20% when looking at IRA savings alone,” said Mario H. Lopez, president of the Hispanic Leadership Fund.

The opponents of another DOL fiduciary rule are attacking it with the same arguments they used against the Obama rule. Fiduciary proponents counter that a fiduciary standard would protect retirement savers from financial advisers’ conflicts of interest that eat away at their nest eggs.

One challenge for backers of the pending DOL fiduciary rule is that many congressional staffers weren't around during the previous fight in 2016 and must be educated about the issue, said Mike Canning, principal at The LXR Group, a public affairs consulting firm.

“They’re hearing about it for the first time from industry lobbyists,” Canning said. “The story they’re hearing is the story the lobbyists want them to hear. Not the actual story.”

Canning helped arrange recent meetings between staffers on the House and Senate committees with jurisdiction over the DOL and groups such as AARP, the AFL-CIO, the Public Investors Advocate Bar Association, Better Markets and the Certified Financial Planner Board of Standards Inc.

“It’s important that the DOL and administration understand that Democrats in Congress consider [the next DOL fiduciary rule] to be a priority,” Canning said. “I would welcome a hearing that might catalyze for the public and policymakers the importance of this issue and the work that remains undone.”

Over the last week, financial industry groups also have been meeting with congressional staffers about the Securities and Exchange Commission’s Regulation Best Interest. The Trump DOL fiduciary rule was meant to complement Reg BI, which also applies to rollovers from 401(k) plans to IRAs.

The Securities Industry and Financial Markets Association and the Financial Services Institute met with House staffers last Thursday to talk about how their member firms were complying with Reg BI, according to spokespersons for both organizations.

The DOL fiduciary rule was mentioned in the discussions but wasn’t the focal point. Reg BI proponents assert the measure preserves access to financial advice. Investor advocates have criticized it as being too weak to curb brokers’ conflicts of interest.

The lobbying will remain intense while the DOL works on its next fiduciary rule, which Lopez said will be a replay of the Obama rule.

All indications are the DOL “didn’t learn their lesson,” Lopez said.