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Regulation and Compliance > Federal Regulation > DOL

‘Rolling’ DOL Fiduciary Guidance Begins in Fall: DOL’s Hauser

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The Department of Labor plans to start pushing out guidance this fall to address questions about its fiduciary rule, Timothy Hauser, chief operating officer of DOL’s Employee Benefits Security Administration, said Friday.

Speaking during a session at the Financial Planning Association’s national conference in Baltimore, Hauser said the guidance will come out on a “rolling basis” starting this fall in the form of frequently asked questions (FAQs), and warned broker-dealers to get their questions in now.

“We do have a lot of questions that we’re going through,” Hauser told attendees. “We’re probably receiving more questions informally than formally. But we do have a lot of questions that we’re going through; we’ve drafted quite a few answers. You’ll start to see some answers.”

Investment Advisor Magazine and Editor Jamie Green, who moderated the panel with Hauser and Ron Rhoades, program chair at Alfred State College Financial Planning Program, noted that while some broker-dealer presidents are starting to comply, they’re waiting for the DOL guidance before finalizing their compliance plans.

“I do worry about some of those broker-dealers,” Hauser replied. “I hope they’ve actually presented the question to me that they’re hoping is going to get answered.”

Rhoades added he’s noticed compliance “is very diverse.” Some firms are “really tackling this [compliance] with new platforms and compensation schemes,” while others “have their heads stuck in the sand” even as the first compliance date is only seven months away.

DOL’s fiduciary rule “really transforms what firms are doing,” Rhoades said. “We’re going to see fee-based accounts move from 40% of our entire industry to 60% to 70% in a relatively short period of time.”

As for enforcing the rule, Hauser explained DOL can investigate plan sponsors’ and advisors’ advice to plan participants on how to invest money as well as taking money out of a plan, be that via a rollover or a distribution.  

“If you violate the prohibited transaction rules, you’re subject to an excise tax, which is the IRS’ job,” he said.

“This is major reform,” Hauser continued. “These are significant changes; DOL is aware of that. Our main goal in the near-term is to help people get to compliance.”

April 2017 is the date for complying with the “basic core fiduciary,” while January 2018 is when firms must “get into full compliance if they’re going to rely on the contract exemptions,” he explained. “Throughout that entire period” between April and January, “I’d expect our aim will be to help people comply. If we see abuse that’s egregious, we’ll take an enforcement action.”

One attendee asked Hauser about determining reasonable compensation.

“It is a market based standard, so what do people charge and are you in line with that?” he replied. “Do a little benchmarking and make sure you’re in line with it. If you’re candid with the customer about what you’re getting paid and [your compensation is] in line with the market, you’ll be in good shape.”

He added: “Cases brought solely on compensation are very difficult to bring.”

As to the three lawsuits pending in Texas, Kansas and District of Columbia courts, Rhoades opined that most of DOL’s rule, “maybe 99%,” will be upheld by the courts.

The brief filed in the Texas case by the Financial Planning Coalition—which includes the Financial Planning Association, the Certified Financial Planner Board of Standards as well as the National Association of Personal Financial Advisors—was one of two allowed by the federal judge overseeing the case.

U.S. District Judge Barbara M.G. Lynn stated the Coalition’s motion should be granted because its proposed brief “provides a unique perspective” as the only filing party “representative of financial professionals in the United States already operating under a fiduciary standard.”

As to whether the Securities and Exchange Commission will ever come out with its own fiduciary rule, Rhoades noted that the change in the Presidential administration will include a new SEC chair as well as two new SEC commissioners.

The new SEC chair “will bring in a new staff, and I hope that in doing that we’ll have some renewed energy to go after a fiduciary rule,” Rhoades said. “Even then it will take a very strong SEC chair to take action…. I think we’re a couple years away, at best.”

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