Industry officials, advisors as well as consumer advocates were quick to weigh in on the Department of Labor’s plan, announced Wednesday, to delay implementation of its fiduciary rule by 60 days.
The proposal, released early Wednesday morning, 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 proposed delay provides time for the administration to conduct a thoughtful review of the issue and [the fiduciary rule’s] harmful impact on retirement savers” as directed in the Feb. 3 memorandum by President Donald Trump, said the American Council of Life Insurers in a statement.
ACLI said Trump’s directive to Labor to conduct an updated economic and legal analysis of the regulation “will reveal its significant problems, especially for Americans who want and need annuities, the only products in the marketplace that guarantee lifetime income.”
The DOL proposal notes the only 45 days until the April 10 compliance date for the final rule and the prohibited transaction exemptions.
Labor argued the 60-day extension is needed because it “may take more time than that to complete the examination mandated by the president’s memorandum.”
Also, Labor said, “absent an extension of the applicability date, if the examination prompts the Department to propose rescinding or revising the rule, affected advisors, retirement investors and other stakeholders might face two major changes in the regulatory environment rather than one. This could unnecessarily disrupt the marketplace, producing frictional costs that are not offset by commensurate benefits. This proposed 60-day extension of the applicability date aims to guard against this risk.”
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, said that Labor, with a 60-day delay plan, is “setting the stage to make the final rule effective immediately. In other words, if the DOL, after receiving comments, writes a final regulation delaying the applicability date — which is probable — that will be sent to the Office of Management and Budget for approval. It will probably be reviewed and released by the OMB in the two weeks preceding the April 10 applicability date.”
Ordinarily, Reish explains, “final regulations have a deferred effective date, but that would not work well in this case because the April 10 date wouldn’t be effectively delayed until after April 10, creating all kinds of difficulty. As a result, I believe the DOL will assert that the final rule should be effective immediately and before April 10, and the statements in the preamble are to set the stage for that.”
Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, stated that the proposed 60-day delay “should be implemented with haste,” as it will “allow the new administration an opportunity to review the rule’s impact on investors and the market, while providing firms additional time to prepare for potential changes to the rule.”
Bentsen maintained that “negative consequences of the rule” are already visible in the marketplace, “with some firms announcing that they will no longer offer certain products, others no longer offering any IRA brokerage accounts, firms reducing web-based financial education tools, and others announcing that advice to clients with lower balanced accounts will be discontinued.”
Delaying the rule, Bentsen argued, “is imperative to avoid further client confusion and market disruption, as firms approach the drop-dead date to notify tens of millions of customers of service changes to their accounts because of the rule, ultimately making retirement savings more difficult for many investors.” But Barbara Roper, director of investor protection for the Consumer Federation of America, said Labor’s proposal “provides compelling evidence in favor of moving forward without delay. The estimated harm to investors from delaying the rule far outweighs the estimated cost savings to industry.”
Labor’s proposal “asks a series of questions about the market response to the rule that, if answered honestly, will show that the rule is working as intended to reduce conflicts while preserving retirement savers’ access to affordable retirement advice through both fee and commission accounts,” said Roper, a staunch supporter of the rule. “Frankly, we don’t see how the DOL can reasonably show that delay of the rule, let alone the repeal that industry is angling for, is justified.”
While a 6-month delay had been widely expected, Reish notes that during the “shortened period, the DOL will take comments for 15 days on whether the proposed rule should be finalized and will take comments for 45 days on a list of questions about the impact of the fiduciary regulation and the exemptions.”
After the comments are received and reviewed, Labor will then issue a final rule extending the applicability date to June 9, Reish adds. “Once drafted, it will be sent to the Office of Management and Budget for another review. The goal is obviously to get the final rule on the extension of the applicability date approved and published by April 10. We expect that to happen at the end of March or early April.”
Scott MacKillop, CEO of First Ascent Asset Management, said DOL’s plan to delay the fiduciary rule’s compliance date “is just another step toward burying a rule that was designed to provide basic fiduciary protection for retirement plan participants.”
The rule’s opponents, MacKillop adds, “are cloaking themselves in pro-consumer rhetoric while gutting a bill designed to protect hardworking Americans from predatory sales practices. While claiming to act in the interests of investors, the anti-rule forces are dancing to Wall Street’s tune and protecting the profits of the financial services industry. They should be ashamed.”
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