DOL Set for 15-Day Comment Period on Fiduciary Rule Delay
September 1, 2017 by Melanie Waddell
The Department of Labor plans to file in the Federal Register on Thursday a 15-day comment period for its proposed 18-month delay to the more onerous provisions of its fiduciary rule — and states that it plans to propose a new, more streamlined exemption built on “recent innovations” in the financial services industry.
The Office of Management and Budget approved Labor’s 18-month delay request, which would extend the transition period and delay applicability for three exemptions from Jan. 1, 2018, to July 1, 2019.
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Also on Wednesday, Labor issued a Field Assistance Bulletin setting out an enforcement policy on arbitration limitation in the rule’s best-interest contract exemption, or BICE, and the principal transactions exemption.
Labor’s proposal to extend the applicability date for the final BICE to July 1, 2019 includes the class-action provision of BICE.
In the Field Assistance Bulletin, Labor is “signaling that it plans to amend the final version of BICE to exclude the requirement that class-actions be permitted,” said Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles.
As noted on page 20 of the 39-page notice for comment in the Federal Register, Labor said that it “anticipates it will propose in the near future a new and more streamlined class exemption built in large part on recent innovations in the financial services industry.”
George Michael Gerstein, a lawyer with Stradley Ronon in Washington, called the plan for a new exemption “quite exciting.”
Said Gerstein: The new streamlined class exemption will likely be a “less onerous exemptions for certain products that have few conflicts of interest, and perhaps a variation of the streamlined best-interest contract exemption.” The streamlined exemption would be independent of the current BICE, he said, and “it looks like it will be nimble enough for new innovations in the financial services industry,” such as clean shares.
Reish said that the 15-day comment period puts the amended delay date “on a fast track,” with an “almost certain” effective date before the current Jan. 1, 2018 applicability date. This means, he adds, “that the transition rules will be applicable until June 30, 2019.”
As Reish notes, Labor’s regulation with the expanded fiduciary definition “is already in final form and became fully applicable on June 9.”
Also, he adds, “some of the prohibited transactions are already applicable,” however, “for three of the most important exemptions — the best-interest contract exemption, PTE 84-24 and the principal transaction exemption — only the transition versions became applicable on June 9.”
Micah Hauptman, financial services counsel of the Consumer Federation of America, a staunch fiduciary rule advocate, said that the consumer group’s position still stands that retirement savers “need the full protections and benefits of the rule on Jan. 1, 2018.”
Without the enforcement mechanism that was scheduled to kick in on that date, Hauptman said, “there is no way to ensure firms will comply with the protections of the rule and no way to hold them accountable if they don’t comply.”
DOL’s quantitative analysis, as presented in the Federal Register notice, “is shoddy and their assumptions are unsupported,” Hauptman argues. “For example, they assume all the benefits of the rule will redound to investors without the full protections of the rule, but this assumption is belied not only by their previous Regulatory Impact Analysis and rule preamble, but also by current market practices. It’s clear that a segment of market participants are waiting on the sidelines and failing to come into compliance with the rule, expecting that the DOL will gut the rule and they won’t be held accountable.”
Labor’s qualitative analysis, however, “provides the agency some leeway and may insulate them from a legal challenge,” he adds.
The Consumer Federation, Hauptman continued, is “still reviewing all our options; my initial view is that it might make sense to hold our fire until they [Labor] predictably gut the rule, and then challenge them on that front.”
Opponents of Labor’s fiduciary rule were also quick to weigh in with their support for the proposed delay.
“It has only been a few months since the impartial conduct standards went in place, but we have already seen investor choice limited and retirement savings advice pushed out of the reach of those who need it most,” said Dale Brown, president and CEO of the Financial Services Institute. FSI has “requested a delay of the rule’s implementation precisely for the reasons the Department outlines in its proposal. President Trump ordered a full review of the rule and its impacts, and it is critical that the DOL completes that review.”
In addition to the rule review, FSI hopes Labor “uses the proposed 18-month delay to coordinate with regulators, including the SEC, to simplify and streamline the rule.”
Ken Bentsen, president and CEO of the Securities Industry and Finanicial Markets Association, added that as SIFMA awaits action by the Securities and Exchange Commission on its own best-interest standard for retail investors, Labor’s rule “continues to harm retirement savers by limiting or eliminating access to investment services and products and raising costs.”
SIFMA, he added, commends Labor’s “proposed delay announcement and will be submitting comments in support of the delay. Finalizing a long-term delay as soon as practicable would be a positive step that would help mitigate customer confusion around the rule and give the DOL adequate time to complete its comprehensive review as mandated by the president.”
