DOL May Push Back Full Compliance for Fiduciary Rule
May 31, 2017 by Warren S. Hersch
Full implementation of the Department of Labor’s Conflict of Interest Rule could be delayed beyond the Jan. 1, 2018 applicability date, according to an FAQ issued this month by the DOL’s Employee Benefits Security Administration.
The document states that the DOL intends to issue a Request for Information (RFI) “in the near future” seeking public comment on an additional extension. The aim is to elicit “specific ideas” about new exemptions or regulatory changes based on prior stakeholder input and recent industry developments. Among the latter: “the debut of new business models” and “innovative products,” including fee-based variable and fixed indexed annuities that insurers and partnering financial services firms have unveiled in anticipation of the rule’s implementation.
“Many of the most promising responses to the Fiduciary Rule, such as brokers’ possible use of “clean shares” in the mutual fund market to mitigate conflicts of interest, are likely to take significantly more time to implement than what the Department envisioned when it set Jan. 1, 2018, as the applicability date for full compliance with all the [best interest contract] exemptions’ conditions,” the FAQ states. “By granting additional time, and perhaps creating a new streamlined exemption, based upon the use of clean shares and other innovations for example, it may be possible for firms to create a compliance mechanism that is less costly and more effective than the sorts of interim measures that they might otherwise use.”
The RFI will specifically seek input on whether an extension of the Jan. 1, 2018 applicability date would enable industry stakeholders (among them agents and advisors affiliated with independent market and broker-dealers subject to the rule’s BIC exemption and impartial conduct standards) to effectively deliver retirement advice while avoiding unnecessary costs building DOL-compliant systems, business processes and best practices.
The EBSA released the FAQ in advance of the June 9 implementation date for the start of the rule’s multi-stage phase-in. In a February memorandum, President Trump ordered the DOL to undertake a 60-day review of the rule, deferring its original April 7 applicability date. That was done to allow for a further assessment of the rule’s industry impact, most notably on retirement investors, whom critics of the rule warn will have reduced access to affordable advice as the rule is now currently framed.
While showing flexibility on the 2018 full-compliant date, DOL Secretary Alexander Acosta is insistent that the June 9 implementation date not be extended. But in recent comments, he has also (to the relief of many) noted that initial regulatory requirements will not be strictly enforced for the rest of the year.
In a Wall Street Journal op-ed piece, Acosta said there is no legal basis for another delay, although he acknowledged criticism that the rule threatens consumers’ investment choice and could result in lawsuits. He also acknowledged common calls for the Securities and Exchange Commission, not the DOL, to set fiduciary standards for advisors.
Two of the rule’s key provisions — one governing who qualifies as a fiduciary to retirement accounts and another requiring advisors working with such accounts to adhere to “impartial conduct standards” — take effect June 9. Enforcement of the best interest contract exemption is on hold until January, 2018.
Uncertainty surrounding the rule is depressing sales of annuities, according to LIMRA. The industry organization forecasts that U.S. annuity sales will fall below $200 billion in 2017. Variable annuity sales will dip 10% to 15% by year-end, pushing sales below $100 billion for the first time since 1998.
