OMB approves proposal for 18-month delay of DOL fiduciary rule's second phase

One observer says agency is trying to give certainty to markets; another asserts it is executing pre-determined course to water down regulation

Aug 29, 2017 @ 1:52 pm

By Mark Schoeff Jr.

The Office of Management and Budget has approved a proposal to delay for 18 months implementation of the remaining provisions in the Labor Department's fiduciary rule.

The OMB made its determination on Monday and posted the decision on its website on Tuesday, taking only a fraction of the 90 days that it could have had to review the proposal, which was submitted by DOL on Aug. 9.

The delay proposal has been sent back to DOL, which is likely to release it soon for a short comment period. After reviewing the input, DOL would file a final delay rule with OMB for approval. Experts say the delay rulemaking process will likely conclude in October. The DOL did not immediately respond to a request for comment.

The agency has proposed pushing back the applicability of the enforcement mechanisms in the fiduciary rule from Jan. 1, 2018, to July 1, 2019, while it undertakes a review of the measure mandated by President Donald J. Trump that could lead to revisions.

The OMB acted quickly in order to set a calendar for financial firms that have been wrestling with the rule, said Erin Sweeney, a member at the law firm Miller & Chevalier.

"What the OMB is trying to do is quell the markets to give people some certainty about what the deadlines are," said Ms. Sweeney, a former DOL senior benefit law specialist. "This was done very quickly to take control of the situation."

Micah Hauptman, financial services counsel at the Consumer Federation of America, said that the OMB's decision to approve the delay was "clearly pre-determined" and that rule supporters are ready to parse DOL's economic analysis.

"We'll be looking for the justification of the delay," Mr. Hauptman said. "Is it to allow for more efficient implementation, as the DOL suggested in their request for information, or is it to buy time to water down the rule?"

Advocates say the rule mitigates brokers' conflicts of interest that can lead to inappropriate high-fee investments that erode savings. Critics of the rule say it is too complex and costly and will price clients with modest assets out of the advice market.

Delaying the enforcement provisions will hurt investors, according to Mr. Hauptman.

"Walking away from that raises real concerns," he said.

Fred Reish, a partner at Drinker Biddle & Reath, said that the 18-month delay would be a reasonable timeout if the DOL coordinates with the Securities and Exchange Commission, which has put out a request for comment that could lead to its own fiduciary rule, as well as Finra, the broker-dealer regulator, and state insurance commissioners.

"That's a time-consuming process to work with each of those groups," Mr. Reish said. "The rules will never end up being identical. But I do think they can be made more compatible."

Two provisions of the DOL rule, which would require all financial advisers to act in the best interests of their clients in retirement accounts, were implemented in June. The remaining parts include the so-called best-interest contract exemption that allows brokers to charge variable compensation for products as long as they sign a legally binding agreement to put their clients' interests ahead of their own. The 18-month delay would apply to the BICE as well as exemptions for principal transactions and for insurance agents and brokers.

For now, some mystery surrounds OMB's delay approval, which OMB said was "consistent with change." The answer to that cryptic note might come when DOL releases the proposal.

"None of this is totally clear," said Aron Szapiro, director of policy research at Morningstar Inc. "What happened today is one more step in the process. Soon we'll have the actual [regulatory] notice and will understand what this means."


What do you think?

View comments

Recommended for you

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


How to explain risk to a client

Most investors know investing involves risks as well as rewards and that the higher the risk, the greater the potential reward. But there are different types of risk and some are easier to understand than others, says Kendrick Wakeman of FinMason.

Latest news & opinion

Meet our 2017 Women to Watch

Introducing 20 female financial advisers and industry executives who are distinguished leaders, advancing the business of providing advice through their creativity and hard work.

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print