Broker-dealers and registered investment advisers are very much at odds over any potential delay of the Department of Labor's fiduciary rule.
Broker-dealers in a full-throated roar are supporting the Department of Labor's proposed 18-month delay in putting into place its new fiduciary rule's second phase,
according to the latest round of comment letters on the rule. The proposal would push back the original January 1, 2018, applicability date to July 1, 2019.
But at least one registered investment adviser believes that delaying the rule's full implementation could be harmful to investors. In its comment letter, signed by Christopher Jones, chief investment officer of Financial Engines Inc., the giant RIA with more than $150 billion in assets under management said it believed that extension of the transition period and delay of the date "would inject additional uncertainty into the market, which could result in the imposition of costs on the industry and investors."
RIAs already are fiduciaries; broker-dealers work under a suitability standard when buying and selling securities for clients. Critics of the brokerage industry maintain the suitability standard is not as rigorous as a fiduciary.
"Although some stakeholders have argued that compliance costs might overshadow the benefits of the conflict of interest rule and limit choices for small investors, we note that many in the industry have already taken significant steps toward compliance — some even publicly announcing their intention to comply with the original applicability date,"
Mr. Jones wrote.
The DOL is seeking to push back the original applicability date by 18 months for enforcement mechanisms in the regulation, such as the so-called best-interest contract exemption. The BICE 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. Other exemptions that would be delayed involve principal transactions and insurance and annuity contracts.
Earlier, on June 9,
a part of the rule went into effect. Two provisions of the measure, which required financial advisers to act in the best interests of their clients in retirement accounts, become applicable at the time. One expanded the definition of who is a fiduciary, and the other established impartial conduct standards.
After the comment period, the DOL will propose a final rule on the delay, which must be approved by the Office of Management and Budget. The process could last into next month.
Trade groups representing the largest independent broker-dealers and wirehouse are pushing for a delay.
"We agree that a delay is necessary and appropriate to allow careful consideration of comments, evaluate the rule's potential undue burden, and to identify potential alternatives that could reduce costs and increase benefits to affected parties without compromising investor protections," wrote David Bellaire, executive vice president and general counsel for the Financial Services Institute. "FSI also supports extending the temporary enforcement policy, during which the DOL will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply, for the same period."
"Such a delay would provide certainty to investors and the financial services industry, and would prevent the continued expenditure of significant amounts for systems, products or processes required by a rule and exemptions that almost certainly will undergo significant changes," wrote Lisa Bleier, managing director and associate general counsel for the Securities Industry and Financial Markets Association.
Financial Engines disagrees.
"A robust conflict-of-interest rule will help to promote the trend toward high-quality, low-cost, technology-based financial services and products that will make unconflicted advice increasingly cost-effective for advisers and accessible for investors of all means," Mr. Jones wrote.
