Adviser, Planner Communities Give Qualified Support for Fiduciary Proposal

The Department of Labor hosted the second of two hearings Wednesday to discuss the retirement security proposal, sometimes called the fiduciary adviser proposal, with stakeholders. Representatives of the adviser and planner industries expressed general support for the proposal, with some caveats.

The proposal would scrap the traditional five-part test in determining who is a fiduciary and would apply a test in which meeting one of three criteria would make the professional a fiduciary: having discretionary authority, claiming to be a fiduciary, or regularly giving individualized advice on which investors rely when making decisions.

Patrick Mahoney, the CEO of the Financial Planning Association, testified that the “FPA believes all consumers are deserving of objective, personalized financial advice that is in their best interest, and we share the Department’s concern that many consumers lack understanding of how the financial industry is regulated and therefore may be challenged to discern among professionals who are legally required to act in their best interest.”

Mahoney and the FPA also supported provisions in the rule that restrict use of adviser-like titles, such as financial planner, when they are misleading.

He did, however, express concern about the DOL’s implementation schedule, which could be as little as 60 days from the finalization of the rule to its effective date. Mahoney also asked for additional clarity on how the proposal would interact with other regulations and for the DOL to have an enforcement regime that initially focuses on education and warnings so that affected parties can adjust to the new rule, once finalized.

Best Interest Advice

Dan Moisand, the chair of the CFP Board, also supported the proposal: “We support the department’s proposal, which makes clear that the definition of fiduciary and the obligations that flow from it apply where investors reasonably believe advice is being provided in their best interests.”

Moisand said that the CFP Board has required its certificants to act as fiduciaries since 2018, and this has not caused its certificant numbers to decline or for the planning industry itself to decline. He argued that fiduciary standards must apply in all recommendations, “including in circumstances where the adviser is providing one-time advice. This is consistent with CFP Board’s standards, where the fiduciary duty extends to one-time advice, such as rollover recommendations.”

Better Rules

Some company representatives were also supportive of the proposal.

Joshua Rubin, the vice president and associate general counsel at Betterment, a financial advisory providing digital investment, retirement and cash management, said the company “enthusiastically supports the goal of expanding access to retirement advice that is in the retirement investors’ best interest.”

Rubin explained that Betterment’s compensation is not based on trading volumes, so the firm has “no incentive to engage in frequent trading.” He added that “unfortunately, this client-aligned business model is far from universal across retirement offerings,” and conflicted advice likely costs savers billions every year.

Rubin also praised the proposal’s updates to PTE 2020-02, which would apply it to digital advice explicitly: “Advice is advice, regardless of the medium,” he said.

However, Rubin expressed misgivings about the breadth of the rule, specifically that it might apply to educational materials or “hire me” conversations in which an adviser is initially offering their services to a potential client.

Tim Hauser, the deputy assistant secretary for program operations at the DOL, reassured Rubin and other commenters that the proposal is not intended to pick up education materials, regulatory disclosures, “hire me” discussions, marketing, or HR communications. It is instead intended to only cover recommendations, understood as a “call to action.”