DOL issues request for comment on fiduciary rule to guide review, possible revisions of measure

The Labor Department on Thursday evening released a request for comment on the agency’s fiduciary rule, seeking input on whether to delay the Jan. 1 full implementation date and soliciting suggestions for streamlining major provisions.

The deadline for responses about extending the Jan. 1 applicability date is 15 days from the request’s publication in the Federal Register, while the deadline for all other comments is 30 days after the publication date. The request, which has been posted on the DOL website, should be published in the Federal Register within the next week.

The DOL is soliciting comments to guide its review of the regulation that was mandated by President Donald J. Trump earlier this year and could result in changes to the regulation. Two provisions of the rule, which requires financial advisers to act in the best interests of their clients in retirement accounts, were implemented earlier this month.

But the rest of the regulation will not become applicable until Jan. 1, including the controversial so-called best-interest contract exemption (BICE) that gives advisers latitude to charge commissions and other variable compensation as long as they sign the legally binding agreement to put their clients’ interests ahead of their own.

The DOL is hinting that it wants to make the contract less complicated. It is asking for comments about whether advisers’ use of mutual fund “clean shares,” which allows brokers to charge the same advice fee on all funds, and fee-based annuities, as well as their utilizing new technology to monitor compliance should qualify them for a “streamlined” contract.

“The Department is particularly interested in public input on whether it would be appropriate to adopt an additional more streamlined exemption or other rule change for advisers committed to taking new approaches like those outlined above based on the potential for reducing conflicts of interest and increasing transparency,” the comment request states.

Other questions posed in the document include:

• “Do the rule and [exemptions] appropriately balance the interests of consumers in receiving broad-based investment advice while protecting them from conflicts of interest?”
• “Should recommendations to make or increase contributions to a plan or [Individual Retirement Account] be expressly excluded from the definition of investment advice?”
• “Are there ways to simplify the the BIC exemption disclosures or to focus the investor’s attention on a few key issues, subject to more complete disclosure upon request?”

Changes to the rule are likely, based on a Wall Street Journal op-ed in May by Labor Secretary Alexander Acosta, who said the regulation “may not align with President Trump’s deregulatory goals.”

The outcome for the rule may also depend on whether the Securities and Exchange Commission proposes its own fiduciary rule for retail investment advice. SEC Chairman Jay Clayton and Mr. Acosta told lawmakers earlier this week that they intend to work together on the issue.

But on Thursday, SEC Investor Advocate Rick Fleming warned that “a poorly designed rule could cause even greater confusion by purporting to give investors the protection of a ‘fiduciary duty’ that would, in fact, be less stringent than the traditional fiduciary duty that applies in other relationships of trust.”

Investment advisers currently must meet a fiduciary standard of care and act in their clients’ best interests, while brokers meet a less stringent suitability standard. Supporters of the DOL rule say that it would reduce conflicts of interest that result in the sale of high-fee products that erode savings. Critics say the DOL regulation is too complex and costly and would force brokers to abandon clients with modest accounts.

Related Topics: Securities and Exchange Commission