DOL fiduciary rule in OMB hands

The Labor Department took an important step in finalizing a rule that would raise investment advice standards for retirement accounts by sending the measure to the Office of Management and Budget last Thursday night.

The OMB confirmed on its website last Friday that it had received the regulation. It has up to 90 days to review the rule, but is likely to expedite the process.

The OMB reviews all proposed and final rules, looking particularly at their economic consequences. After the OMB signs off, the DOL will release the final rule publicly — perhaps as early as March and likely by April.

CALL FOR THOROUGH ANALYSIS

A major financial industry trade association urged the OMB to conduct a comprehensive cost-benefit analysis of the final rule, an entreaty that could foreshadow an argument the industry would make in a lawsuit.

“The OMB has a statutory mandate to get this right,” Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, said in a statement. “To do so, it must fully assess the impact of the DOL's rule to ensure it serves the best interest of American investors without making saving harder and causing undue harm.”

An advocate said the DOL will not be able to please critics of the rule, who will continue to challenge it.

“The Department of Labor has done a pretty significant job in listening to all the stakeholders over the last five-year period,” said Christine Lazaro, associate professor of clinical legal education at St. John's University. “To imply they haven't fully considered the cost-benefit analysis of the rule's impact is misleading.”

The timing of its arrival at OMB indicates the DOL likely tweaked rather than gutted the original proposal, said Duane Thompson, senior policy analyst at Fi360, a fiduciary duty consulting firm.

“It confirms there's going to be no wholesale overhaul of the rule, as some opponents wanted,” Mr. Thompson said. “If they were going to make substantial changes, they might have taken longer. It's largely going to be a rule that is the same proposal, with changes here and there.”

Under the proposed rule, the financial industry would have eight months for implementation, a compliance deadline that could stretch into next year.

AVOIDING DELAYS

“The administration probably wants to avoid extending [implementation] much beyond inauguration day,” Mr. Thompson said.

The controversial regulation — designed to reduce conflicts of interest for financial advisers working with 401(k) and individual retirement accounts — was introduced last April with strong backing by President Barack Obama.

Opponents say the complex rule will significantly increase brokers' liability risk and regulatory costs, making advice more expensive — thereby pricing people with smaller accounts out of the advice market.

A staunch critic, Rep. Ann Wagner, R-Mo., author of a bill to halt the rule, launched an attack last Thursday night before the rule's transmission to OMB had become public. The DOL “has ignored Congress, thumbed its nose at the thousands of Americans who have expressed concerns about the impact this rule will have on family savings and jobs, and has charged blindly forward with this executive overreach,” Ms. Wagner said in a statement.

The DOL aims to complete the rule before the new administration.

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