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DOL Fiduciary Guidance Coming Soon

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The Department of Labor plans to “push out guidance fairly shortly” to address questions about compliance with Labor’s fiduciary rule, Timothy Hauser, chief operating officer of DOL’s Employee Benefits Security Administration, said Monday.

Speaking at the Investment Management Consultants Association’s Focus on Fiduciary event in Washington, Hauser noted the technical corrections that were issued in early July regarding the fiduciary rule, adding that there will be “more guidance to follow.”

Hauser told reporters after his remarks that while DOL has “drafted” guidance in question-and-answer form and is “working on” such guidance, he couldn’t provide a timeline on when it would be released. The biggest concern DOL has heard from advisors thus far is “are they going to change their incentive structures. We have some people coming in to talk to us about some specificity on that,” he said.

Other questions have focused on firms’ “training programs” as well as the best interest contract exemption, he added.

Hauser also warned attendees that while “work continues on the rule,” with more guidance forthcoming, the rule is “final; this is going to be law.” He reiterated that firms “should not be spending enormous amounts of money on compliance systems if you don’t know how to comply” with the rule. “We very much encourage firms to come and talk to us and raise issues. …You shouldn’t be afraid to ask the question and get the answer. Better to get the answer than spend the money and find out we’re not happy.”

Ray Ferrara, the former chairman of the Certified Financial Planner Board of Standards who’s chairman and CEO of dually registered ProVise Management Group in Clearwater, Florida, noted on a panel discussion at the event that he expects his firm to shell out “less than $10,000 in our hard costs” to comply with the fiduciary rule, but didn’t anticipate “any significant ongoing [compliance] costs.”

But David Eisen, senior vice president of investments in UBS’ Philadelphia office, said “the cost [of complying with the rule] to our firm will be pretty significant.”

Hauser emphasized during his remarks that the rule’s “definition turns on whether you made a recommendation. It’s not just the description of the attributes of an investment.”

The technical clarifications DOL issued in early July addressed whether insurance companies can use the best interest contract exemption as well as principal transaction exemption clarifications.

Hauser told reporters Monday that there are no further ”technical corrections planned at the moment.”

One attendee asked Hauser if financial planning crosses the line into advice when an advisor tells a client to roll over assets but doesn’t recommend a specific investment.

“If you recommend that someone roll their money out of a plan, that’s going to count as fiduciary advice,” Hauser replied. “You do need to be prudent in making that recommendation.”

Another question was whether an advisor is a fiduciary if she recommends that assets remain in a plan.

“Any recommendation that generates a fee for the advisor … if you get compensation by virtue of the person leaving the money in the plan and you are advising them to keep the money in the plan, that’s likely to be fiduciary advice.”

Meanwhile, David Blass, general counsel for the Investment Company Institute, noted in comments at the IMCA event that “some initial decisions” will be rendered by the courts by year-end in the five cases lodged against DOL’s fiduciary rule.

The Department of Justice defended the rule when it filed papers in July in a Washington district court arguing against the case filed by the National Association for Fixed Annuities.

A hearing in NAFA’s case is scheduled for Aug. 25; the hearing in the case brought by insurer Market Synergy against DOL was set to take place on Aug. 24, but it has been pushed back to Sept. 21.

Meanwhile, the federal judge in Texas overseeing the three lawsuits filed in the state against DOL has set a Nov. 17 date to hear oral arguments from both sides.

Blass noted his belief that the House Appropriations bill introduced to torpedo DOL’s rule will go nowhere, as President Obama holds the veto pen, and urged attendees to “get ready” for the fiduciary rule’s April 2017 compliance date. “As smart as [Eugene] Scalia is, you just don’t know the outcome of litigation,” Blass said.

Former DOL solicitor Scalia, who’s now a partner in Gibson, Dunn & Crutcher’s Washington office, represents the nine plaintiffs in the first suit, filed June 2 in the Texas district. The plaintiffs include the Securities Industry and Financial Markets Association, the Financial Services Institute, the Financial Services Roundtable, the U.S. Chamber of Commerce, the Insured Retirement Institute and four Texas groups, including the Texas Association of Business.

The key to understanding the fiduciary rule is “are you making a recommendation, and do you get paid in a way that after the fact can be viewed as conflicted,” Blass said.

“BICE is intended to be the key to making all of this work. You’re going to have to learn and deal with it.”

He added that DOL “has turned most enforcement to the plaintiffs’ bar,” particularly around compliance with the BICE. “What is the plaintiffs’ bar going to do with this [rule]?” Concerning the BICE, “a lot of focus will be on the litigation and policies and procedures to eliminate incentives.”

As to whether the Securities and Exchange Commission would eventually issue a fiduciary rule, Blass opined that the likelihood of such a rule would hinge on current SEC Chairwoman Mary Jo White – a staunch fiduciary rule advocate — remaining after the presidential inauguration. Such a rulemaking “will all turn on the election and who gets that SEC chair position,” Blass said.

— Check out DOL Clarifies Fiduciary Rule for Insurance Companies on ThinkAdvisor.


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