Experts say DOL fiduciary rule's fate, timing uncertain, changes likely

However long it takes to play out, panelists at InvestmentNews' Retirement Income Summit doubted the regulation will remain in place in its current version

Apr 24, 2017 @ 2:11 pm

By Greg Iacurci

A panel of regulatory experts questioned Monday how the fight over the Labor Department's approaching fiduciary rule will play out, alluding to a political landscape in Washington that's in constant flux and a tight deadline for taking action before provisions of the rule officially come into force.

"To me, it's an unknown," Maureen Thompson, vice president of public policy at the CFP Board of Standards Inc., said at InvestmentNews' annual Retirement Income Summit in Chicago in response to a question about whether the rule will go through and as written.

Ms. Thompson said the implementation date of the Obama-era rule, which raises investment advice standards in retirement accounts such as IRAs and 401(k)s, is likely to remain June 9. It has already been delayed once by the Trump administration, from April 10.

Under the standards of the delay that's currently in place, advisers will have to do two things starting in June: act as fiduciaries and adhere to impartial conduct standards when providing investment advice to retirement savers.

But opponents of the rule are pushing hard for another delay, which will be difficult given the short time line for that to occur, according to panelists.

"We're in a pretty tenuous spot right now as it relates to timing," said Robert DeChellis, president and chief strategist at Allianz Exchange and chairman of the Insured Retirement Institute's board of directors.

That's primarily because Alexander Acosta, President Donald J. Trump's nominee for Labor secretary, hasn't yet been confirmed by the Senate. Congress likely will vote on his confirmation next week, but that time line could be pushed back if negotiations between Republicans and Democrats stall in the upcoming budget battle, panelists said.

Congress must pass a spending bill by midnight Friday to avoid a government shutdown.

Opponents believe the entirety of the rule should be delayed beyond June 9, because they feel it would be more in line with the spirit of Mr. Trump's directive to review the rule and assess its impact on investors and the financial services industry.

However, that would be difficult if Mr. Acosta's hearing is pushed out several weeks to sometime in May, Mr. DeChellis said.

"It literally is that critically tied to the timing of the confirmation of the secretary of Labor," Mr. DeChellis said, adding that he doesn't know Mr. Acosta's exact position on the fiduciary rule but would "assume he'll try to follow the president's directive of doing a review of the entire rule."

(More: The latest news and resources on the DOL fiduciary rule)

Of course, even if there is no further delay, the rule's primary enforcement mechanism — the best-interest contract exemption — won't be in force until January. Some savers, such as those in 401(k) plans, will have the enforcement mechanism that's been available to them for the past 40 years under the Employee Retirement Income Security Act of 1974, though.

Whatever the timing, panelists doubted the rule will remain in place in its current iteration.

While opponents likely won't succeed in getting "a wholesaler repeal of this rule," it's likely the BICE will be taken out or "considerably watered down," said Mark Schoeff Jr., senior reporter at InvestmentNews.

The BICE is the most controversial provision of the rule, in large part because it exposes financial institutions to class-action litigation risk.

Ms. Thompson believes the BICE will not go forward as written in January, and the industry will end up with a fiduciary rule "in name only" — as is feared by proponents of the rule.

However, consumer groups such as the Consumer Federation of America would likely sue if such a thing were to happen, Mr. Schoeff said.

One considerable risk for rule proponents is the upcoming congressional battle over government funding, which could see a DOL-rule-killing rider attached to any legislation. Funding bills are usually "massive and done at the last minute, and everything is thrown on the table," Mr. Schoeff said, adding that Democrats may have to decide where they're willing to spend political capital to save the rule.

"Democrats might become fatigued, and when it comes to the DOL rule, they might say, 'Fine, whatever, delay it by 180 days, or kill the thing," he said.

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