Republican Lawmakers Call for Department of Labor to Abandon Fiduciary Duty Proposal
Republican lawmakers are urging the Department of Labor (DOL) to reconsider its proposal to expand retirement advisors' fiduciary duties, raising concerns about potential limitations on investment advice availability.
Troy D. Hanson
September 06, 2023
Republican lawmakers are urging the Department of Labor (DOL) to reconsider its proposal to expand retirement advisors' fiduciary duties, raising concerns about potential limitations on investment advice availability. Sen. Bill Cassidy (La.) and Rep. Virginia Foxx (Va.), who hold leadership positions on Senate and House committees overseeing the DOL, argue that the department's wavering positions on this issue have caused confusion within the industry.
According to Cassidy and Foxx, the DOL has expressed three different stances on what it means to be an investment advice fiduciary over the past two years. This lack of consistency has resulted in unnecessary instability for retirement plans, retirees, and savers.
The lawmakers also reference the Obama-era DOL fiduciary regulation that faced legal challenges from industry groups and was ultimately overturned by the Fifth Circuit Court of Appeals. Cassidy and Foxx caution against repeating a similar episode and urge the DOL to heed this precedent.
While the DOL included a summary of its rule-making initiative in its spring regulatory agenda, a specific timeline for the proposal's release is yet to be determined. However, the department did offer a summary of its intentions in the agenda.
Proposed Amendment to Definition of Fiduciary
The Department of Labor (DOL) intends to amend the regulatory definition of the term "fiduciary" in order to more accurately identify investment advisors who provide advice for a fee to employee benefit plans and IRAs. This proposed amendment takes into consideration the practices of investment advisors, the expectations of plan officials and participants, and the owners of IRAs who receive investment advice. It also takes into account developments in the investment marketplace, including how advisors are compensated, which may lead to conflicts of interest.
Although representatives for the DOL have not provided any comment on the status of the proposal or on Cassidy and Foxx's letter, experts suggest that the practical impact of the letter will be limited. Duane Thompson, President of Potomac Strategies, a consulting group, believes that any attempt to redefine fiduciary status under Erisa will face strong political opposition.
Thompson states that the letter is unlikely to change the policy dynamics and predicts that if the DOL proceeds with proposing a revised definition of fiduciary, they will take measures to avoid a repetition of the Fifth Circuit's decision to vacate the 2016 rule. He views the letter as a political warning rather than a deterrent to the DOL's plans to introduce a new rule.