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The US Labor Department’s Employee Benefits Security Administration (EBSA) is set to conduct extensive hearings over two days on a proposal that could significantly impact the fiduciary advice standards for financial professionals. This marks the first public clash between the Biden administration and Wall Street concerning retirement advice regulations.
Proposed Rule Widens Fiduciary Transactions
EBSA’s proposed rule seeks to replace a nearly 50-year-old fiduciary investment advice regulation, expanding the scope through a new facts-and-circumstances analysis. This analysis focuses on whether an individual or business consistently provides investment recommendations, whether the proposals are personalized, and whether they can be objectively viewed as part of a trust-based relationship in the investor’s best interests.
Witnesses and Stakeholder Perspectives
Over three dozen witnesses are scheduled to testify at the hearings, representing diverse perspectives. Notable organizations such as AARP, the American Council of Life Insurers, the Federation of Americans for Consumer Choice, the American Bankers Association, and the US Chamber of Commerce are expected to present their views. Wall Street lobbying firms, including the Securities Industry and Financial Markets Association and Investment Company Institute, are also slated to testify.
Impact on Financial Markets
The proposed rule could reshape financial markets by imposing more onerous reporting and disclosure requirements on salespeople marketing financial products. This shift to fiduciary status could expose companies to new legal risks and have far-reaching implications for the financial industry.
Focus on Objective Understanding
EBSA’s emphasis on a person’s objective understanding of advice represents a renewed attempt to address concerns raised by a 2018 appeals court ruling overturning a similar Obama-era regulation. Critics argue that the proposed amendments could negatively impact Americans, particularly those in underserved communities, hindering adequate retirement savings.
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Rollovers Targeted
The proposed rule rejects the 1975 five-part fiduciary definition to capture recommendations for rolling investments out of workplace retirement plans. This move addresses concerns about rollovers, which are considered crucial financial decisions. Critics argue that such decisions, benefiting brokers at clients’ expense, result in “junk fees,” a term endorsed by President Joe Biden in his administration’s consumer-focused messaging.
Accelerated Timeline and Public Comment Period
EBSA has set an accelerated timeline to finalize the fiduciary rule before the upcoming election, aiming to avoid potential challenges from Congress or a new administration. The current public hearings occur within a 60-day window for public comment, a departure from prior attempts. Despite stakeholder requests for an extension due to religious holidays, EBSA denied the wing, with the comment period set to close on January 2.
Stakeholder Concerns and Financial Inclusion
Stakeholders are expected to utilize the hearings to argue that fiduciary investment advice may be more expensive for consumers. Plan sponsor advocates contend that the proposed rule blurs the distinction between salesmanship and financial advice, potentially hindering financial inclusion by creating barriers and limiting retirement options.
Amid this regulatory battle, the financial industry awaits the outcome of these hearings and the potential impact on the landscape of retirement advice and fiduciary standards.\
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