Attorney General Becerra Opposes DOL Proposal that Would Allow Financial Advisors to Profit at the Expense of Their Clients Saving for Retirement

Thursday, August 6, 2020
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SACRAMENTO – Attorney General Xavier Becerra today led a coalition of nine attorneys general in opposing a proposed regulation by the U.S. Department of Labor (DOL) that would significantly weaken protections for workers who are saving for retirement. The DOL's actions include the reinstatement of a weak five-part test that allows most financial advisors to avoid fiduciary obligations. It also includes a proposal titled “Improving Investment Advice for Workers and Retirees” that would create a new Prohibited Transaction Exemption (PTE) which allows even those few advisors who would otherwise have fiduciary obligations to profit at the expense of their clients preparing for retirement. In the letter, the coalition urges DOL to withdraw its proposal and focus on rules that truly protect retirement savers, rather than condone dishonest business practices that harm the financial and retirement security of hardworking Americans.

“The Department of Labor touts its new rules as improving investment advice for workers and retirees, but that could not be further from the truth,” said Attorney General Becerra. “The proposed rules roll back protections for families that are saving their hard-earned money for retirement and roll out the red carpet for financial firms to profit at their expense. We will continue fighting unfair and unscrupulous practices that hold our families back.”

Many financial firms hold themselves out as trusted financial advisors to individual investors, when in fact, they are not. According to DOL’s own research, conflicted fiduciary advice costs retirement investors tens of billions annually. Recognizing the need for fiduciary protections, Congress enacted the Employee Retirement Income Security Act of 1974 (ERISA) that established essential protections for retirement savers. Since ERISA was enacted, the vast majority of retirement plans have shifted from professionally managed benefit plans to individually managed contribution plans, such as 401(k)s and IRAs. Navigating the financial marketplace can be difficult, and the stakes are high – which is why workers planning for retirement seek honest, professional advice from fiduciaries.

In the letter, the coalition argues that DOL’s proposal threatens the financial future of millions of Americans by reinstating an outdated five-part fiduciary test filled with loopholes that allow broker-dealers and insurance companies to avoid fiduciary requirements. Additionally, the coalition argues that the proposal would establish a new PTE that would allow fiduciaries to receive conflicted forms of compensation when providing advice to retirement investors so long as they abide by a so-called “best interest” standard. This standard is identical to the U.S. Securities and Exchange Commission’s (SEC) weak Regulation Best Interest – a regulation that falls far short of the protections Congress intended when it passed ERISA to protect retirement investors. Furthermore, the coalition claims that DOL’s 30-day comment period for its proposed regulatory package is too short to allow for meaningful comments and requests that it be extended to a 90-day comment period.

Attorney General Becerra has stood firm in his fight for consumer investment protections. In May 2018, Attorney General Becerra filed a motion to intervene in Chamber of Commerce of the USA, et al. v. U.S. Department of Labor, et al., in an attempt to preserve the Obama-era DOL Fiduciary Rule before the Fifth Circuit. He then sought reconsideration of the decision by the Fifth Circuit Court of Appeals to deny the States’ motion to intervene in the case. In August 2018, Attorney General Becerra sent a comment letter to the SEC criticizing its proposed rules that failed to impose a fiduciary standard on broker-dealers. In September 2019, Attorney General Becerra filed a joint lawsuit challenging the SEC’s so-called Best Interest Rule, which would allow broker-dealers to continue promoting investments that better compensate them at the expense of their customers. That same month, he submitted a comment letter objecting to an SEC Concept Release advocating expanding exemptions for private offerings. In March 2020, Attorney General Becerra objected to the SEC’s proposed rule that would expand the definition of “accredited investors” and diminish protection for individual investors.

In submitting the letter, Attorney General Becerra is joined by the attorneys general of Connecticut, Illinois, Iowa, Maryland, Minnesota, New York, Oregon, and the District of Columbia.

A copy of the letter can be found here.

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