Even supporters of the Department of Labor's fiduciary rule are still looking to tweak the measure.
For instance, the Investment Adviser Association wants the regulation modified so that advisers who are already fiduciaries can promote their services to prospective clients without fiduciary responsibility being attached to the pitch.
Morningstar Inc., the investment research firm, suggested that the DOL take the controversial best-interest contract out of the rule and replace it with automated third-party reviews of portfolios.
These are two of the recommendations which surfaced as comment letters started pouring into the agency again. Monday marked the deadline for responding to the issues raised by President Donald J. Trump in his Feb. 3 memo to the DOL.
Mr. Trump directed the agency to update the economic and legal analysis of the rule -- which would require financial advisers to act in the best interests of their clients in retirement accounts -- and revise or repeal the regulation if it was found to reduce investors' access to retirement advice, increase their costs, disrupt the financial industry or cause an increase in litigation for financial firms.
The DOL delayed implementation of the rule for 60 days -- from April 10 to June 9 -- to conduct the reassessment. As of June 9, two provisions of the rule -- one expanding the definition of who is a fiduciary and the other regarding impartial conduct standards -- will become applicable. The agency said that it will complete its review by Jan. 1, the final deadline for full implementation.
Between now and then, the IAA hopes that the DOL eases restrictions surrounding conversations between advisers and clients prior to the client's signing a contract with the adviser.
"[T]he department should categorically exempt pre-contractual communications from the definition of 'recommendation' in all cases where an SEC registered, fee-based adviser, acting as such, will be a fiduciary after entering into a contractual arrangement with the client," wrote IAA president and chief executive Karen Barr in an April 17 comment letter. "[F]ree flow of information will best promote the interests of retirement investors by enabling them to understand and distinguish the services of various candidate advisers, and permit advisers the flexibility to be as responsive and provide as much information as they desire in pre-contractual discussions."
Morningstar takes aim at the part of the rule that is most divisive and probably the most likely to change -- the best-interest contract exemption. Under this provision, financial advisers are allowed to charge commissions and take other forms of compensation that would normally violate a fiduciary standard as long as they sign a legally binding agreement with clients to act in their best interests.
Opponents of the rule charge that the DOL is out of bounds in creating a private right of action. Supporters say that the contract is necessary to put teeth in the rule.
Morningstar, which estimates that class action suits stemming from the rule could total $70 million to $150 million annually, is proposing an alternative to the contract.
"We believe that an auditable big-data system provided by a neutral third party for reviewing individual portfolios across a firm, as well as the reasons advisers recommended rollovers to [individual retirement accounts] and in support of advice within IRAs, could substitute for the Best Interest Contract Exemption while still protecting investors," Aron Szapiro, Morningstar director of policy research, wrote in an April 13 comment letter. "[S]uch a uniform prudence standard and data assembly system will likely be developed in any case to help firms defend against lawsuits."
Over the next several months, the agency will have to sift through many ideas like this one in what will likely be thousands of comment letters.