Sparks fly at DOL hearing on Biden's 'retirement security rule'

At a sometimes heated debate over the Biden administration's "retirement security rule," speakers clashed over regulations, speaking times and even a stack of papers on one panelist's desk.

The U.S. Department of Labor (DOL) hosted the virtual public hearing on Tuesday, the first of two days scheduled for the discussion. At issue was President Joe Biden's proposal for a new regulation extending the fiduciary rule — the legal requirement for wealth managers to act in their clients' best interests — to cover all areas of retirement advice, including 401(k) rollovers and annuities.

President Biden has pitched this new rule, which the DOL would be responsible for enforcing, as necessary to protect consumers from financial "junk fees." On Tuesday, advocates for the insurance and wealth management industries made it clear they resented that language. 

Mark Smith, a lawyer speaking on behalf of the Financial Services Institute — an advocacy group for financial advisors — called the junk fees argument "a lazy sound bite for one news cycle."

Wayne Chopus, president of the Insured Retirement Institute — an insurance industry trade group — went further, saying the Biden administration "completely mischaracterized the entire insured retirement industry."

"The president disparaged our industry and its workers by inventing a link to his efforts to fight 'junk fees,'" Chopus said. "But there is no mention of that term in the 495 pages of the new regulation he announced."

In general, opponents of the new rule called it burdensome, unnecessary and redundant to existing regulations. Advocates for insurance companies, which sell annuities, denounced the proposal with particular fervor.

On the other side, supporters of the rule said it was badly needed to fill in gaps in the current regulatory framework, and would ensure that all retirement savers receive advice that puts their interests first.

"Requiring financial advisors to put their client's best interests before their own is common sense and critically important to our retirement system," said David Certner, legislative policy director at the retiree advocacy group AARP. "It comes as a surprise to many retirement savers that this is not already the standard."

READ MORE: 3 ways Biden's 'retirement security rule' could affect financial advisors

Micah Hauptman, director of investor protection at the Consumer Federation of America, did not mince words as he defended the proposal. He called its detractors "cynical" and accused the insurance industry of using "scare tactics."

"Their shifting arguments suggest that what they really want is a patchwork of different standards, which allow them opportunities to continue their very profitable, but harmful, conflict-ridden practices," Hauptman said. "The industry opponents' self-serving arguments should not divert the department from completing this important investor protection project."

But perhaps the most dramatic moment of the day came during Smith's testimony, which included a physical demonstration. 

To show the excessive regulation that he said broker-dealers already endure, Smith piled up pages and pages of documents on his desk. This, he said, was the paperwork currently required just to open a new IRA for a client. Then, on top of that, he stacked the forms that he said would be needed under the new DOL rule.

The total, Smith said, came out to 650 pages of applications, disclosures and other forms, all for one retirement account. For comparison, he placed next to the first stack a much smaller pile of papers, which he said were the closing documents for a house he bought.

"What are we accomplishing here?" Smith asked. "To avoid duplicate remedies for a very limited number of bad actors in the professional community, we're engaging in regulatory overkill."

But before Smith could finish his argument, he ran out of time. DOL officials repeatedly admonished him to wrap up his comments. As Smith drew to a close, crosstalk between him and the hosts made both sides largely inaudible.

Then came a question from Tim Hauser, a deputy assistant secretary at the Employee Benefits Security Administration, part of the DOL.

"Mr. Smith, this rule, at least the way I see it … is not fundamentally a disclosure package," Hauser said. "And I appreciate the props — some of which included documents that were mandated by other regulators — but at bottom, this rule requires that if an investment professional … is providing individualized advice, it's in the customer's best interest. … Do you believe any of those obligations are incompatible with providing advice?"

READ MORE: Do Biden's claims about 'junk fees' add up? Depends who you ask

Smith responded that the DOL's regulations "do not operate in a vacuum," and officials should be mindful of that.

"With respect to my props," he added, "thank you for admiring them. I much appreciate that."

Despite other interruptions and technical glitches, one message came across very clearly: Opponents of the rule are not open to adjusting or improving it. At one point, a reporter asked Susan Neely, CEO of the American Council of Life Insurers, if any such changes could address her concerns. 

"No," Neely replied. "We do think the proposal needs to be withdrawn."