The March 1 proposal allows for a 15-day comment period on Labor’s plan to move the rule’s first compliance date from April 10 to June 9. The official notice was published in the Federal Register on March 2.
Labor is also taking comments for 45 days on a list of questions about the impact of the fiduciary regulation and the exemptions, including whether the rule will spark an increase in litigation.
As anticipated, commenters are weighing in on both sides – for and against a delay, and eventual overhaul or repeal, of Labor’s fiduciary rule.
Meanwhile, the D.C. Circuit on Tuesday published the schedule for the National Association for Fixed Annuities’ appeal. The group is challenging a trial judge’s refusal, in November, to stop enforcement of the fiduciary rule. The D.C. Circuit in December also declined to freeze implementation of the rule.
NAFA has until April 17 to submit its opening brief to the D.C. Circuit. Labor has until May 17 to file its brief. The court set May 31 as the deadline for NAFA to file a reply. Oral arguments have not been set, and the D.C. Circuit doesn’t typically hear cases in the summer except on an emergency basis.
The schedule suggests the court could hear arguments in the fall and issue a ruling in late 2017 or sometime early next year.
In its comment letter on the fiduciary rule’s delay, Betterment founder and CEO Jon Stein said that while the rule “may not be perfect — no regulation ever is,” the fiduciary rule “is the only realistic hope for prompt action to improve the quality of retirement advice.”
A delay, Stein continued, “would be bad enough, but it would be even worse if the delay is used as an opportunity to dilute the rule or remove it altogether. We are extremely concerned about this possibility.”
Labor, Stein maintained, “can certainly” revise aspects of the rule, “once the rule is actually in effect. That is, the Department can take another look at the rule without imposing a delay that would imperil the rule itself.”
Stein worries that the “positive changes” in the investment industry since the rule’s passage, “such as reductions in fund fees and changes to conflicted service models” could disappear if the rule is “watered down” or delayed. “For the benefit of the millions of Americans saving for retirement, we ask that the Department of Labor allow the fiduciary rule to go into effect this April.”
Financial Engines told Labor that while some in the industry may desire additional time to comply, Financial Engines “is proud to be in full compliance and we are encouraged that many others have announced their intention to be in compliance by the original applicability date.”
Looking beyond a potential delay, Financial Engines Chief Investment Officer Christopher Jones urged Labor to maintain “strong protections to ensure that all Americans have access to unconflicted investment advice.”
With more than 92 million individual investors now responsible for managing their own retirement assets, Jones wrote, “there has never been greater demand for high-quality investment advice.”
Financial Engines, he continued, believes the Conflict of Interest Rule “or a similar regulation is workable for investment advisors and beneficial for investors.”
The fiduciary rule “or a similar regulation will further accelerate the trends toward low-cost, technology-based financial services and products, which will, in turn, make unconflicted advice increasingly cost effective for advisors and accessible,” Jones wrote.
Centennial Securities Co. argued, however, in its comment letter that “we need a delay to ensure our clients understand and are prepared for the changes they will experience as a result of the rule.”
The firm said that it has “spent significant time revising how our business runs, changing our policies and procedures necessary to make the enormous shift required by the new rules, drafting client correspondence and explanations of revised product offerings necessitated by the rule, and creating compliance and surveillance programs, amongst a host of other adjustments.”
Because of “uncertainty” regarding the fiduicary rule, Centennial continued, and President Donald Trump’s Feb. 3 executive order directing Labor to undertake an assessment of its fiduciary rule, and if it deems appropriate, a proposal to revise the rulemaking, “we have not communicated to clients the ways in which the rule will affect the products and services available to them. We strongly believe that clients will be bewildered, confused and uncertain if changes are announced that then need to be revisited in light of the president’s memorandum. We urge you not to disrupt the retirement market in this manner.”
The rule, Centennial said, “should not be applicable until the questions raised by the president are addressed and the new secretary of Labor determines whether rescission or revisions are required or appropriate.”
Charles Mann with Professional Financial Advisors Inc. in San Juan Capistrano, California, opined in his comment letter to Labor that he believes the fiduciary rules “are more harmful than good,” and that he’s “glad” to see “another period of review.”
While “all for reducing conflict of interest,” Mann said he believes the fiduciary rule “would cause more potential litigation in an industry that has too many unscrupulous attorneys that are willing to litigate for no valid reason on the hope of corporations paying them off to get rid of the lawsuit.”
Furthermore, the rules “would also limit competition to qualified plans,” Mann argued. “Many service providers are talking about no longer servicing the industry. We will be left with fewer companies that may very well be poor providers or worse yet, have brokers that will always have some conflict of interest.”
--- Check out SEC to Probe Advisor, BD Fiduciary Compliance With ReTIRE Initiative on ThinkAdvisor.