Department of Labor by NCinDC is licensed under CC BY-ND 2.0

ATR supports Rep. Rick Allen’s (R-Ga.) joint resolution of disapproval (H.J. Res. 142), which nullifies the Department of Labor’s (DOL) final rule that arbitrarily expands the definition of “investment advice fiduciary.” The new definition applies to activities that have traditionally fallen under the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI). If the joint resolution is signed into law, the final rule and any future substantially similar rules would be considered null and void.  

The DOL should not mimic European regulators and wantonly antagonize investment firms for charging fees that the regulator deems unwarranted. For example, the United Kingdom’s Financial Conduct Authority (FCA) is scrutinizing fees charged by certain investment firms. Regulators should not be in the business of micromanaging fee structures without clearly proving the legal threshold for culpability has been breached.  

In the U.S. the legal threshold for culpability depends on the type of firms and service being offered. Broker-dealers, which facilitate buying and selling securities for clients and their own proprietary operations, are subject to the standards of conduct under Reg BI. Registered investment advisers (RIAs) are subject to a strict fiduciary duty of loyalty and prudence. 

In November 2023, DOL issued a proposed rule to expand the definition of a fiduciary to apply to broker-dealers and activities that have not conventionally necessitated a fiduciary duty. Regulation BI was crafted to mitigate conflicts of interest while also ensuring that broker-dealers could still offer their services to clients at an affordable price. To unnecessarily heighten standards of conduct would compel broker-dealers and insurance agents to institute costly new safeguards that would assuredly be passed down to Americans’ 401(k)s and individual retirement accounts (IRAs). As evidenced by one recent lawsuit, Reg BI requires disclosure of material information and holds broker-dealers accountable when they do not put their clients’ best interests ahead of their own. Reg BI provides adequate accountability for broker-dealers and guardrails for their clients. 

Arbitrarily applying fiduciary standards would make certain investment products prohibitively expensive for lower-income individuals. Even a one-time recommendation to roll over 401(k) funds into an IRA to buy shares of mutual funds or exchange-traded funds (ETFs) would be considered offering fiduciary-level advice under the rule.  

The Biden administration is specifically targeting life insurance and annuities. For example, if an insurance agent makes a one-time recommendation for a client to move their 401(k) funds into an annuity, the action of advising that move would now constitute a fiduciary duty. The lower threshold for culpability will likely drive some suppliers of annuities out of the market for fear of legal liability. The new restrictions on commissions will also force participants to leave the market. This in turn reduces the number of market suppliers and makes the cost of annuities more expensive due to a reduction in competition.  

The rule attempts to justify its own provisions by claiming that annuities need stricter federal oversight. Unless an annuity is considered a security, they are not generally governed by federal securities laws. Since it is “an insurance contract sold by insurance companies,”annuities are primarily regulated at the state level. DOL’s rule acknowledges, “all annuity products are subject to State regulation,” but also opines that the state regulations are “a lower standard.” DOL appears to not trust states to hold bad actors accountable. However, federal statute and common law supports state and not federal regulation of insurance. This was bolstered by Congress’s enactment of the McCarran-Ferguson Act in 1945, which states that: 

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. 

In 1999, the Gramm-Leach-Bliley Act “once again affirmed that states should regulate the business of insurance by declaring that the McCarran-Ferguson Act remained in effect.” Even the Dodd-Frank Act kept “the primary state insurance regulatory functions” intact.   

DOL should not be in the business of nitpicking how broker-dealers and insurance agents charge clients for their services. This classic example of government interventionism is a back-door price control. Commissions are not “junk fees,” they are a perfectly legal price for providing a service. DOL’s proposed application of fiduciary status is just another way for the Biden administration to further control annuities and other investment products.   

Lawmakers should oppose DOL’s final rule and support H.J. Res. 142.