The lines are being drawn over the supporters and detractors of the proposed amendments to the definition of what it means to be a fiduciary released by the White House and Department of Labor last Tuesday.

As Michael Kreps, an ERISA attorney at the Groom Law Group, pointed out in a reaction post, the situation could be similar to an attempt by the administration of former President Barack Obama to amend the regulations. Although the administration of President Joe Biden and the DOL have given it a new name—the retirement security rule—Kreps points out that they seek a similar result: bringing individual advisers seeking one-time retirement rollovers or selling annuities under ERISA.

Public comments—against, in favor or some combination—are being prepared by industry organizations, investment firms, insurers and advisories. On Wednesday, 18 trade organizations from retirement, insurance and asset management requested that the DOL double the 60-day comment period to 120 to allow for additional responses.

But while the attention is widespread, the focus will most likely be on those operating in individual advisement for commissions and retail annuity sales—which happen to be booming—according to industry players.

“The rule is targeting those that are selling a product, not a process,” says Eric Dyson, executive director of 90 North Consulting LLC.

Conflicts ‘at the Root’

Dyson, who works with plan sponsors to find retirement plan advisers trained in the Employee Retirement Security Act, notes that a big part of that process is unearthing “conflicts of interest” in being compensated for certain product areas. When it comes to individual advisers selling retail annuities or one-time rollovers, those businesses are sometimes driven by commissions made from those transactions.

“That is at the root of what we are digging into here,” he says.

But earning fees or commissions on products, according to some detractors of the proposal, will actually limit the very people the proposal is intended to help: those with fewer assets to save in retirement.

Jack Elder, who, as director of advanced markets at CBS Brokerage, works with advisers to offer life insurance products, divides the financial advice market into three categories.

In the first, a person with assets writes a check to work with a financial adviser. In the second, a saver has enough assets that an adviser will work with them for a percent-of-assets fee based on how well the portfolio performs. In the third, someone can work with an adviser who earns compensation for the products or companies the adviser represents.

This third pool, Elder says, is already heavily regulated to provide a “standard of care” to clients, including the SEC, FINRA, professional licensing organizations, state insurance commissioners and state and federal consumer regulators. He sees the DOL’s proposal as “duplication” that would, ultimately, reduce the advice being provided to those with fewer assets.

“This thing is a land grab,” Elder says. “If you aren’t somebody who can write a check for advice, or if my assets aren’t sufficient enough to get me entry into a broker/dealer or RIA, then what am I left with? … Thousands of Americans that were getting financial professional advice would stop getting professional advice. The retirement gap, which is already growing, would accelerate.”

Who Should Care?

For qualified plan retirement providers already working with clients under ERISA, it may affect how they talk to potential clients, according to attorney Kreps.

“The proposed rules don’t necessarily change the day-to-day fiduciary advice advisors are providing plans,” he says. “But the rules do impact how advisers market themselves. DOL acknowledged that touting your own qualifications isn’t advice in and of itself, but if an adviser talks about investment strategies or products, the sales discussion can quickly become fiduciary advice, which is a problem because it could lead to ERISA violations.”

That extends to the DOL’s mention of advisers giving retirement investment menu advice, according to Kreps.

In its attempt to ensure all investment menu discussions are part of the fiduciary rule, the DOL “seems to be trying to get at the marketing discussions that happen when a provider offers an investment platform,” he says. “Historically, a person wasn’t viewed as providing advice by just marketing a product, but DOL is turning that on its head and saying that you can become a fiduciary if you use the wrong words when describing the platform.”

Kreps notes that operating as a fiduciary does not necessarily mean advisers won’t receive commissions for selling products like annuities. In the Securities and Exchange Commission’s Regulation Best Interest, which covers these types of one-off transactions, the regulator “was explicit that it was not banning commissions,” according to the attorney.

“Technically, DOL’s new rule would permit commissions, too, for those crossing the line into providing advice, but the financial institution would be required to ensure that the product is in the best interest of consumers and mitigate sales conflicts,” he says.

Who Will Pay?

Eric Droblyen, president and CEO of small business 401(k) recordkeeper Employee Fiduciary, sees the proposals as positive for the retirement industry and savers because he sees it protecting investors who are gambling with what may be most of their assets.

“Deciding to roll your 401(k) account to an IRA, weighing the fees, considering the benefits—that’s beyond the ability of 99% of people,” he says. “You really need that regulatory baseline to help the little guy out.”

Droblyen believes if, through the amendments, consumers are given a more “apples to apples” comparison between what they can get within their retirement plans as opposed to rolling out, many will likely choose to stay to take advantage of the lower-cost options, along with advice they can get within plan.

“If [a retirement saver] goes with a rollover recommendation or an insurance products—that’s huge,” he says. “There’s no going back from it; if you’re in a good, low-cost plan, you can’t get back in once you leave. … If we are moving toward conflict-free advice, that is good news.”

Attorney Kreps notes that there already are rules in place for selling commission-based products in 43 states by the National Association of Insurance Commissioners. But the DOL’s “best interest” fiduciary overlay would mean a significant ramping up of process and resources that, in the end, could ultimately land on consumers.

“The proposed rule would almost certainly increase distribution costs, because financial institutions and professionals will need to do more work and take more risk,” he says. “Most of those costs will ultimately be borne by consumers, and the segments of the market that can’t bear the costs will likely stop being served. That seems like basic economics, and the debate between DOL and the industry is whether that is a positive change.”