DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

Critics of the DOL fiduciary rule are urging the Labor Department to delay its implementation until January 2019 — or possibly longer.

“To provide needed certainty, reduce harm to investors and limit unnecessary ‘sunk’ costs associated with implementing requirements that the department ultimately eliminates or modifies, the department should immediately — by August 15, 2017 — issue an interim final rule delaying the January 1, 2018, applicability date to January 1, 2019,” Investment Company Institute acting general counsel Dorothy Donohue and deputy general counsel David Abbey wrote in a comment letter last week.

The U.S. Chamber of Commerce went a step further in its comment letter and called for the transition period for the regulation to be extended until June 30, 2019, “or a later date if needed by the department.”

The DOL rule, which requires financial advisers to act in the best interests of their clients in retirement accounts, was partially implemented in June. Two provisions became applicable then — one that expanded the definition of fiduciary to include brokers, who now operate under the suitability standard, and one that implemented impartial conduct standards for advisers.

Democratic lawmakers supporting the DOL rule, called on the DOL to put the rest of the rule in place as scheduled.

“Delay of the rule would result in considerable financial harm to retirees and investors … Delay also increases regulatory uncertainty for the industry, which has been diligently working to comply with the rule,” wrote Sen. Patty Murray, D-Wash. and ranking member of the Senate Health Education Labor and Pensions Committee, along with four other Senate and House colleagues who are the highest ranking minority members on labor and financial committees.

The latest comment request, whose deadline was Friday, seeks information that would justify changing the remaining parts of the rule, including the controversial best-interest contract that would allow advisers to charge variable compensation as long they enter a legally binding agreement to serve the best interests of their clients.

Few of the letters provided any new analysis of the rule, which was finalized in April 2016, although the American Council of Life Insurers said that the rule had helped to curb sales of variable annuities by 8% in the first quarter of the year.

“A lot of [the letters] had to do with delay rather than new data to change [the DOL’s] opinion,” said Steve Parrish, a consultant and adjunct professor of law at Drake University. “They aren’t long documents with market research showing how the market is affected.”

One new wrinkle was offered by the American Retirement Association, which argued that reduced disclosure requirements for advisers who charge a level fee regardless of their investment recommendations be expanded to include “rebating” and other arrangements.

The Securities Industry and Financial Markets Association reiterated its recommendation that the DOL work with the Securities and Exchange Commission to propose a new fiduciary rule that would “enhance the existing suitability obligation … that would apply across all securities recommendations made to retail customers.”

The DOL rule, which has been under construction since 2010, has been the subject of numerous comment requests, leading to a “general fatigue” on the issue, said George Michael Gerstein, counsel at Stradley Ronon Stevens & Young.

“It’s going to be a challenge for the department to hang their hat on data and arguments that haven’t already been provided in the past,” Mr. Gerstein said.

Part of the focus on delaying the DOL rule may reflect opponents’ desire for the SEC to weigh in.

“They really do think the big dog in town is going to get into the fight,” Mr. Parrish said.