NAIFA President Cammie Scott submitted a comment letter on behalf of NAIFA that generally supports the Department of Labor’s proposed class exemption for investment advice fiduciaries under ERISA and the Internal Revenue Code and makes several suggestions to improve the proposal.
The DOL proposal would create a prohibited transaction exemption (PTE) for financial professionals working with retirement plans that preserves different business models, allowing agents and advisors to offer proprietary products and receive commissions as compensation, for example, and for the most part would not conflict with the Securities and Exchange Commission’s (SEC’s) Regulation Best Interest (Reg BI) or the National Association of Insurance Commissioner’s (NAIC’s) Annuity Suitability Model Law.
“The DOL proposal protects consumer interests without putting undue barriers between financial professionals and their clients and should preserve the ability of middle-income retirement savers to receive crucial guidance and service,” said NAIFA CEO Kevin Mayeux. “It is a vast improvement over the Department’s fiduciary proposal that NAIFA helped defeat through our grassroots activism and our being party to the lawsuit that eventually led federal courts to strike the rule down.”
In NAIFA’s comment letter, Scott suggested several revisions to make the current proposal stronger. First, DOL should revise the Preamble to the proposal to more clearly conform to the Fifth Circuit Court of Appeals’ decision that struck down the previous DOL rule. The proposed Preamble does not draw a firm distinction between “investment advice” and isolated transactions or recommendations, as the court’s decision does. This could cause confusion.
Second, the proposal would establish “impartial conduct standards” that are subjective and may not always align with the SEC’s Reg BI. NAIFA urges the DOL to remove an unnecessary “best interest” requirement for ERISA plan fiduciaries who are already required to act in their clients’ best interests under existing law. Also concerning is the proposal’s requirement that financial professionals provide a fiduciary disclosure statement to clients prior to any transaction. This could confuse consumers, because the ensuing transactions may not, in fact, require a fiduciary duty of the agents or advisors. NAIFA is also concerned that the proposal’s enhanced documentation requirement for account rollover recommendations could create unnecessary burdens for financial professionals and their clients.
NAIFA also urges DOL to revise the proposal to clarify that the PTE applies to insurance intermediaries and to clarify that certain retirement plan recommendations without investment components are not considered fiduciary investment advice.
"We very much appreciate the Department’s efforts to create a workable and broad-based PTE for investment advice fiduciaries to ERISA Plans and IRAs and your consideration of our comments,” Scott concluded, and she expressed NAIFA’s willingness to work with the Department to improve the proposal.