Monday, December 4, 2017

DOL Delays Fiduciary Rule

On Monday, November 27, 2017, the Department of Labor (DOL) announced that some key provisions of the fiduciary rule will be extended for 18 months.

The fiduciary rule, in its most basic context, requires brokers and advisors to act in the best interests of their clients who have retirement accounts, including IRAs and rollovers from qualified retirement plans, including 401(k) and 403(b) plans.  The DOL first proposed the regulations in October 2010 but withdrew them in 2011 after opposition from the financial services industry as well as some members of Congress.  The regulations were reintroduced in 2015 with the final rule becoming effective June 7, 2016.  Compliance with the rules surrounding broker conduct and disclosure was delayed until April 10, 2017.  A transition period for compliance with some of the provisions was put in place from April 10, 2017 until January 1, 2018.  This latest delay will extend implementation of the enforcement provisions of the rule until July 1, 2019.  During this now extended transition period, fiduciaries will be required to meet the Impartial Conduct Standards, which requires that they receive only reasonable compensation, make no misleading statements, and act in their clients’ best interest.  Clearly, the path of these regulations has been arduous and the recent delay only makes it more so.

During this extended transition period, President Trump has directed the Department of Labor to re-assess the impact of the rule, a review that could lead to substantial changes.  DOL officials have said the delay gives the department the time necessary to consider “whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by the Securities and Exchange Commission, state insurance commissioners and other regulators.”  Some have speculated that the recent delay is a step towards total repeal.  While the DOL is reviewing what changes might be needed, the Securities and Exchange Commission (SEC) is working on its own fiduciary rule, one that would apply to retail investment accounts.

Not surprisingly, the opposition from various interested parties that contributed to the initial delay in finalizing the regulations, continues to be a factor.  Those opposed to the rule say it is too costly and overly complex, which will preclude clients with small account balances from having access to investment advice.  They view the delay as a positive one, citing that there is data that the regulation is doing substantial harm to those it was meant to protect and the delay will give the DOL the time needed to make necessary changes.  Those in favor of the regulation feel it protects the consumer from broker conflicts of interest and the sale of high cost investment products.  They call the delay short-sighted and deplorable. 

Whatever side you may be on, the delay will only add to the already heightened state of confusion that exists.  It is likely that the “final” regulation will be different from what exists today, but to what extent is unknown. 

HANYS Benefit Services will continue to monitor the activities at both the DOL and the SEC, as well as Congress, and keep you abreast of any changes.  If you have any questions or would like to talk to a retirement plan advisor, please call us at (800) 388-1963 or via email at hbs@hanys.org.