Delay of DOL fiduciary rule enforcement mechanisms now final

Supporter of regulation calls the postponement 'an effective repeal of the rule'

Nov 27, 2017 @ 2:04 pm

By Mark Schoeff Jr.

The Department of Labor released a final rule Monday that would delay implementation of the enforcement mechanisms of its fiduciary duty regulation until the middle of 2019.

The rule would postpone from Jan. 1, 2018, to July 1, 2019, the applicability of a legally binding contract between brokers and retirement-account clients that requires brokers to act in their best interests, among other disclosure provisions and prohibited-transaction exemptions being pushed back.

The DOL said it needs the extra time to conduct a reassessment of the rule's impact on retirement advice that was ordered by President Donald J. Trump in a Feb. 3 memo. Two provisions of the rule — one that expands the number of financial advisers who are deemed fiduciaries and another that sets impartial conduct standards — were implemented in June.

"The department is granting the delay because of its concern that, without delay in the applicability dates, consumers may face significant confusion, and regulated parties may incur undue expense to comply with the conditions or requirements that the department ultimately determines to revise or repeal," the DOL stated in the text of the final rule, which will be published in the Federal Register on Nov. 29.

An advocate for the rule asserted that delay means death for the regulation.

"In our view, this is not a delay. It's an effective repeal of the rule," said Micah Hauptman, financial services counsel at the Consumer Federation of America. "This is just a way of stopping the rule to buy them time to kill it, and they haven't justified it on those grounds."

Mr. Hauptman said backers of the rule haven't decided whether to file a lawsuit against the delay.

"We don't think the department has satisfied its legal obligations, and we're evaluating our options going forward," he said.

A DOL spokesperson said in an email that the purpose of the extension is to "evaluate the rule's impact on access to financial information and advice and is compliant with the Administrative Procedure Act."

In the final rule text, the agency said it was "confident of its authority to grant the 18-month delay."

Rule critics welcomed the postponement, which had been sent on Nov. 1 to the Office of Management and Budget for approval.

"The delay will allow the DOL to conduct a thorough review of the rule, as ordered by President Trump, to ensure investor choice and access to retirement savings advice is protected," Financial Services Institute president and chief executive Dale Brown said in a statement.

The DOL said it needs the next year-and-a-half not only to conclude its review of the fiduciary rule but also to coordinate with the Securities and Exchange Commission as well as state insurance regulators on setting investment advice standards.

"A collaborative and harmonized approach would ensure all consumers receive retirement savings information and related financial guidance from financial professionals acting in their best interest, regardless of the retirement products they purchase," Dirk Kempthorne, president and chief executive of the American Council of Life Insurers, said in a statement.

But Mr. Hauptman said the end result will be a dilution of the fiduciary rule, which supporters say mitigates broker conflicts of interest that lead to the sale of inappropriate high-fee investments that erode savings.

"They're giving the industry rule opponents exactly what they want, which is a best-interest-in-name-only standard that leaves retirement savers without adequate protections," Mr. Hauptman said.

During the 18-month transition period, the DOL said it "will not pursue claims against fiduciaries working diligently and in good faith to comply" with the impartial conduct standards that are already in place.

That provision — which requires retirement advisers to act in their clients best interests, charge reasonable compensation and not make misleading statements — will shield investors during the rule review, the agency said.

"[T]he duties of prudence and loyalty embedded in the impartial conduct standards provide protection to retirement investors during the transition period, apart from the additional delayed enforcement and accountability provisions," the final rule states.

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