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Regulation and Compliance > Federal Regulation > DOL

DOL fiduciary rule to be finalized early in 2016, PwC says

By Nick Thornton

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Analysts at PriceWaterhouse Coopers expect the Department of Labor to finalize its proposed fiduciary rule “early next year,” with the core framework of the proposal left intact, according to a regulatory brief published by the consultancy.

That is earlier than other prognostications, which have suggested a final rule would not emerge until the fall of 2016.

PwC expects the rule will transform existing business models and the competitive landscape for broker dealers.

But before it is finalized, the DOL will have significant work refining the proposal’s exemptions and carve outs.

Specifically, the Best Interest Contract Exemption, which will allow commission-based compensation on investment products so long as extensive disclosure requirements are met, will have to be adapted.

Read more on the DOL’s proposed fiduciary rule

One of the more challenging requirements of the BIC exemption is the point of sale disclosure that requires one, five and 10-year cost projections on fees prior to the sale of the investment.

PwC expects the DOL to “simplify” that requirement before finalizing its rule, as it conflicts with existing securities regulations that prohibit sales communications that project, or predict future performance of investments.

But even if that provision of the BIC exemption is eliminated, broker dealers are still expected to face significant operational and technological challenges complying with other requirements on commission-based transactions.

Those requirements may delay transactions, as advisors will have to obtain retirement investors’ contractual consent before executing the purchase of a product, according to the analysts.

That potential for delay “could result in an outcome not in the client’s best interest, if investment opportunities are missed,” wrote the analysts.

Financial institutions will be forced to modernize client notification methods in order to reduce consent times, “which could prove difficult with older investors,” they added.

One way to avoid the BIC exemption requirements, which the analysts call “strict, complex, and in many cases ambiguous,” and will involve “significant costs,” will be for firms to adopt a fee-based compensation model.

PwC also says the rule’s principal transaction exemption will create complex and expensive contractual requirements for broker dealers.

The exemption allows firms to sell fixed-income investments from their own inventory so long as the investors are given two price quotes of similar securities from other sales channels.

That requirement is likely to remain in the DOL’s final rule, according to PwC.

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