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By: Ze’eva R. Kushner
The landscape of the Department of Labor’s Fiduciary Rule continues to shift and has changed significantly since our last commentary on this topic in June. (DOL Fiduciary Rule is Delayed No More) On June 9, 2017, two provisions of the Rule became applicable: (i) the expansion of the definition of who is a fiduciary, and (ii) the establishment of impartial conduct standards. The next step, full implementation, is currently set to take place on January 1, 2018. This date is no longer set in stone. In fact, it likely will be delayed until mid-2019.
The DOL has started the process to delay the date of full implementation by 18 months, until July 2019. On August 9, 2017, the DOL submitted its proposal for extending the date to the Office of Management and Budget (“OMB”). In less than one-third of the time statutorily allocated for review, the OMB approved the proposed 18-month delay on Monday and posted it for comment on Tuesday, August 29, 2017. The proposed extension still must go through the rulemaking process, which allows stakeholders to submit comments for consideration before implementation.
The DOL’s proposed delay pertains to three essential components of the Fiduciary Rule, the best interest contract exemption, which allows brokers to charge variable compensation for products if they sign a legally binding agreement putting their clients’ interests ahead of their own, as well as exemptions for principal transactions and for insurance agents and brokers. At the end of June, the DOL had put out a request for information regarding the best interest contract exemption, also referred to as BIC or BICE, in furtherance of its compliance with President Trump’s directive in February 2017 for additional analysis of the potential impact of the Rule.
An 18-month delay of the Fiduciary Rule could present a renewed opportunity for the DOL and U.S. Securities and Exchange Commission to work together and coordinate the implementation of a uniform fiduciary rule that applies to all investment accounts, not just retirement accounts. Or, in theory, Congress could enact some form of legislation on the topic. A postponement also would provide more time for firms to budget for the resource-intensive requirements of the regulation.
Nonetheless, the underlying narrative of the Obama-era Fiduciary Rule—that retail retirement investors should be protected from financial harm stemming from biased advice—remains the same and does not appear to be going away. The fiduciary rule, in some form or another, is the new reality for broker-dealers and registered investment advisors.
The Financial Services practice group attorneys are here to assist you. Please contact Ze’eva Kushner at [email protected] or John Goselin at [email protected] for more information.