CFP Board Amicus Brief Defends the DOL’s Retirement Security Rule
As you probably know, the Department of Labor has taken another shot at revising its Retirement Security Rule for retirement plans under ERISA. And if you know that, I bet you also know that somebody (it almost doesn’t matter who) has sued the DOL in the Eastern District of Texas to enjoin implementation of the Rule. Much of the fight comes down to whether a fiduciary standard should apply to retirement plan rollover recommendations made by financial professionals, in addition to the more regular investment advice that those professionals engage in.
Now, I wrote that last sentence deliberately to avoid some of the knotty questions we’ll get into below, but . . . the CFP Board, which licenses and oversees certified financial planners around the country, has written an amicus brief supporting the rule. It’s a good brief! It really does fulfill the purpose of an amicus brief – i.e., providing a useful perspective to the court that isn’t necessarily represented by the actual parties’ papers – and does so in a compelling way. Let’s get into it.
The CFP Board makes four main arguments: (1) empirical research and experience confirm that moderate-income investors retain ready access to financial advice when it is provided under a fiduciary standard; (2) retirement investors suffered under DOL’s 1975 fiduciary reg; (3) research demonstrates that investors expect to receive unconflicted investment advice that’s in their interest (including advice about rollover recommendations and other one-time recommendations); and (4) DOL’s new rule fills regulatory gaps and is consistent with securities regulations.
A Similar Expansion in 2018
The CFP Board has some context. In 2018 it went through the same sort of expansion of fiduciary obligations that DOL is proposing here. In 2007, the CFP Board “require[d] a CFP® professional to . . . act as a fiduciary when providing financial planning . . . to a client.” Eleven years later they expanded a CFP® professional’s fiduciary obligation to all financial advice, covering any communication that reasonably would be viewed as a recommendation.
Some Arguments
As it turned out, financial professionals didn’t flee from this expansion of the scope of CFPO Board members’ fiduciary duties. The number of CFP® professionals – 2/3 of which are registered representatives of broker-dealers, and 64% of which hold insurance licenses – has actually increased by 25% since 2018.
Their brief also cites a number of surveys and studies indicating that retail investors actually do expect financial professionals to keep their best interests in mind. One survey found that “nearly 97% of Americans agree that financial professionals who provide one-time recommendations or other one-time retirement investment advice should be required to act in their client’s best interest, including a recommendation to roll over funds from a workplace retirement savings program (such as a 401(k) plan) into an IRA.” I suppose that isn’t surprising?
Next, the CFP Board that the actual ERISA definition says “. . . a person is a fiduciary with respect to a plan to the extent… (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so . . . .” 29 U.S.C. § 1002(21)(A). That’s a pretty board definition! It doesn’t limit the timing or nature of the advice; it just has to be about “any moneys or other property.”
The DOL’s 1975 regulation, however, is much narrower and holds that fiduciary obligations attach only to advice made “on a regular basis.” Meanwhile, in the 50 years since that rule was written, the retirement plan universe has shifted away from defined benefit pension plans and toward 401(k) plans, IRAs, and individual retirement annuities, rollovers to those plans have became increasingly common. And rollovers don’t happen on a regular basis. Maybe just a few times in a person’s working life. The CFP Board would close this gap by expanding financial professionals’ fiduciary obligations when their advice touches on these less common events like rollovers, which certainly are about “money or other property.”
The brief also includes a helpful table comparing the Retirement Security Rule to the SEC’s Regulation Best Interest. When the SEC passed Reg BI, some argued it didn’t go far enough, but it was always hard for me to see how it did not essentially impose a fiduciary duty on broker-dealers when they were giving investment advice. The table is quite useful in exploring the nuts and bolts of both rules.
Anyway, will this brief be persuasive and help DOL in upholding its rule? Well, the case was filed in the Eastern District of Texas and would be appealed to the Fifth Circuit. I bet it won’t be successful. But maybe we’ll see another version of this fight in a few years.