The CFP Board submitted an amicus brief on Wednesday defending the Department of Labor’s Retirement Security rule, which is under legal challenge by the annuities and insurance industries.
The U.S. District Court for the Eastern District of Texas is currently hearing the lawsuit filed by the Federation of Americans for Consumer Choice and other insurance and annuities plaintiffs. The lawsuit, filed in May, challenges the DOL’s authority to promulgate a rule that for the first time applies a fiduciary standard to onetime retirement advice, including retirement plan rollovers and annuity sales.
Historically, onetime sales and the sale of non-securities products such as fixed annuities have been excluded from a fiduciary advice standard.
The insurance and annuities industries argue that because of the significant compliance cost of implementing the rule on onetime sales, agents will be forced to work with upper-income clients to offset costs and stop serving moderate-income clients who want to roll over their retirement assets.
The CFP Board, a staunch supporter of the new rule, argued in its brief that the evidence disproves the plaintiffs’ claims. “CFP Board’s Code of Ethics and Standards of Conduct, which includes a robust fiduciary duty, has not restricted the flow of advice to investors, including from the 64% of CFP professionals with an insurance license. Instead, the number of CFP professionals has grown significantly,” the board said.
The SEC’s Regulation Best Interest, which parallels the DOL Retirement Security Rule, and applies to annuities that are securities, also did not restrict access to advice among any category of investor, the CFP Board said.
“The reality is that insurance agents also will be able to serve all types of clients under the DOL Retirement Security Rule but will not be able to act on their unbridled conflicts of interest and take unfair advantage of their clients,” the brief said.
The CFP Board noted that its fiduciary standard has been in effect for members since 2018 and that very few planners have increased their account minimum requirements as a result.
CFP Board General Counsel Leo Rydzewski said in an interview that for years the industry has been moving in the direction of requiring professionals to act in clients’ best interest, “but since insurance and fixed-annuities aren’t covered by existing regulations, there is an enormous gap in protections on some of the most important assets that an American has—their retirement savings. The DOL is seeking to fill that gap by modernizing the regulation to apply particularly to retirement insurance products not currently regulated as securities.
“We filed the brief because we believe that it’s important for the court to know that approximately a third of financial professionals in the U.S. share our worldview that the American consumer should be working with a financial professional who works in their best interest,” added Rydzewski.
The judge has not yet decided whether to accept amicus briefs in the lawsuit, which is also asking for the court for an injunction to stay the DOL’s rule while the case proceeds. The rule is scheduled to go into effect September 24.
A nine-member industry coalition that includes the American Council of Life Insurers, Finseca, the Insured Retirement Institute and the National Association of Insurance and Financial Advisors is challenging the fiduciary rule in a separate lawsuit in the U.S. District Court for the Northern District of Texas.