Proving yet again that she will not back down when it comes to matters of consumer protection, Senator Elizabeth Warren is slamming financial firms for their two-faced responses to the Department of Labor's proposed revamping of the fiduciary rule. The proposal, which aims to shield investors from conflict-laden investment advice, has been blasted by firms like
First for the uninitiated, some background: in April, the Department of Labor issued a fiduciary rule proposing that a “best interest standard” be applied across a broader range of investing advice such that any advisor getting paid to provide personalized investment advice -- on things like what assets to buy or whether or not to roll a 401k into an IRA -- be considered a fiduciary and have to put their clients' interests first. Currently, brokers and advisors must only comply with a "suitability standard," which means that they must make recommendations that are suitable to an individual's investment needs, but they can also consider their own and their firms' interests.
In the months since the DOL put forth this fiduciary rule, Republicans and financial firms have excoriated the proposal as being bad for America and placing an undue burden on firms' business.
"It will be very difficult, if not impossible, for financial professionals and firms to comply with the requirements," Jackson National Life Insurance president James Sopha wrote in a letter to the DOL in July. In an 83-page letter sent to the DOL the same day, Lincoln CEO Dennis Glass called the fiduciary proposal "immensely burdensome" and "extremely intrusive," while also noting that "it would be a mistake to assume that fee-based compensation models are always better for retirement savers than commission-based models."
Kent Callahan, the president and CEO of Transamerica's investment and retirement division, told the DOL that "the re-proposal would substantially change our ability to provide the range of retirement services and products from which investors can choose to meet their own specific needs." And Susan Blount, executive vice president at Prudential, noted that the proposed fiduciary requirements posed a "significant challenge" that could lead to "increased compliance costs" and will "significantly" increase firms' servicing expenses.
But in a letter sent to the Department of Labor and the Office of Management and Budget Thursday morning, Senator Warren (alongside Representative Elijah Cummings, a Democrat from Maryland), basically called the firms' claims baloney. Why? Because, in her view, each company made completely contrasting comments about the fiduciary rule in public comments to their investors.
"Publicly traded companies are rarely held accountable for assertions they make when lobbying in Washington, even if these assertions are untrue," Warren writes. "But when communicating with investors, publicly traded companies are required by law to provide full and accurate information about any material matters that may affect their business models or stock valuations."
As Warren depicts it, Jackson National's claim that complying with the fiduciary rule would be "impossible" was negated when the CEO of Jackson's parent company, Mike Wells, said in a earnings call with investors that the company is "better situated than any of our competitors to address [the rule] quickly and effectively." And Lincoln CEO Dennis Glass' arguments that the rule would be burdensome lose their punch when considered alongside his comments to investors that "we don’t see this as a significant hurdle for continuing to grow that business."
To Prudential's remarks that the proposed rule would pose a "significant challenge" to its operations, Warren lobs back Prudential CEO John Strangfeld's remarks from the company's second quarter earnings call. "We remain confident that we will successfully navigate whatever the ultimate outcome may be," he told investors -- just weeks after his executive vice president told the DOL otherwise.
And for Transamerica, which also talked about the proposal "substantially" changing the company's ability to operate, Warren points to comments by Alex Wynaendts, the CEO of Transamerica's parent company Aegon. In August, he too told investors that the company has shown a track record of being able to adjust and that he expects this flexibility to serve the firm well going forward.
Naturally, when reached for comment by FORBES on Thursday, company spokespeople denied that the firms had been duplicitous in their representations of the effects of the proposed fiduciary rule.
"As we have said consistently, the Department of Labor fiduciary rule could have the unintended consequence of limiting client access to financial advice and retirement solutions," said Scot Hoffman, a spokesperson for Prudential. "We have a business mix and business strategies that enable us to navigate that potential disruption better than most of our competitors, but that does not lessen our concerns about unintended consequences for American households.”
A spokesperson for Transamerica said, “Transamerica has been very consistent in our view that the proposed ‘Fiduciary Rule’ in the form that Transamerica commented on last August would not be in the best interests of customers and would deprive many middle-income Americans of the professional financial advice that they need. Mr. Wynaendts’ comments to shareholders in no way contradicts Transamerica’s view. Rather, speaking on behalf of Aegon, which operates in 25 markets internationally and in diverse regulatory environments, he noted that its companies have managed to adjust to various market requirements. Transamerica is committed to preserving its ability to provide customers with the full range of essential services they require to achieve long-term financial security and continues to hope that the final Rule will enable us to do so in the best interests of our customers.”
A representative from Lincoln said: “Lincoln Financial has consistently supported the DOL’s primary objective in the fiduciary rule of making sure that consumers receive advice that is in their best interest. ... In our comments to investors, we have explained that only 30% of our individual annuity sales in the fourth quarter of 2015 came from products that would be impacted by the DOL proposal, namely variable annuities within qualified plans. We further stated that, if necessary, Lincoln can pivot to other products that are not affected by the DOL rule, further reducing our dependence on the impacted sales. The products that Lincoln would pivot toward, however, may not provide the same flexibility and opportunity for growing income as variable annuities, impacted by the rule. We, therefore, continue to believe that consumers may suffer if the changes we requested are not made to the rule, and the statements made to our investors are consistent with those made to the DOL.”
Representatives from Jackson did not immediately provide comments.
Thursday's letter is hardly Warren's first go at supporting the DOL's proposal for less conflict-laden investment advice. In an October report titled "Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry," Warren blasted firms for giving kickbacks and Caribbean vacations to agents who sell annuities to consumers.
"Across the financial industry, conflicts cost American investors an estimated $17 billion in retirement savings every year," she said at the time. "New regulations are needed to protect consumers and end this financial conflict of interest."
This post was updated to reflect a comment from Lincoln Financial.
