Now that the comment periods have expired on the Department of Labor’s fiduciary rule, industry groups say they “need certainty as soon as possible” about whether or not Labor will delay the Jan. 1 compliance date, and at least one attorney anticipates a quick delay.
“I expect that we will hear something [regarding a delay] at the end of this month or in the first half of September,” Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, told ThinkAdvisor Tuesday.
Reish also anticipates that Labor will issue revisions to the rule, but that “there’s no telling” when such revisions will come.
Labor “needs to address the delay immediately,” adds Steve Saxon, partner at Groom Law Group in Washington. “This is because financial institutions will need as much time as possible to convert to the new disclosure regime, if there is one.”
Depending on “how much lead time” Labor gives firms to implement any revisions, it “should announce substantive revisions by November, at the latest,” Saxon continues, but “this could be somewhat challenging” because the deputy assistant secretary and assistant secretary positions at Labor have yet to be filled by the White House.
The first deadline under a two-part request for information issued by Labor on June 29 expired July 21. The department sought comments on whether it should delay the fiduciary rule’s Jan. 1 compliance date. The second part of the RFI, with a comment period ending Monday, solicited feedback on 18 questions about the rule.
The rule’s Impartial Conduct Standards took effect on June 9.
The Securities and Exchange Commission has also been seeking feedback on a laundry list of items not only regarding Labor’s fiduciary rule, but to inform a potential SEC fiduciary rule.
Industry groups have also argued that a delay is required so that Labor and the SEC can coordinate on a fiduciary rule.
SEC Chairman Jay Clayton told lawmakers on July 26 that with the Labor rule being “on the books, … we’re in a position where we could have different standards for the individual investor — that doesn’t seem right.”
The Committee of Annuity Insurers — which includes 29 member companies such as AXA, AIG and Voya Financial, that represent over 80% of the annuity business in the United States — told Clayton in their comment letter that “since there is now a strong possibility that some parts of the fiduciary rule and related exemptions will change,” Labor should delay the Jan. 1, applicability date “in order to prevent affected firms, including the Committee’s member companies and affiliates, from having to prepare for and implement a regulatory regime that might differ materially” from the current rule.
Without such a delay, the committee said, “affected firms are likely to incur duplicative and unnecessary costs, which, one way or the other, will be passed onto Americans saving for retirement.”
Just as important as a delay,” the groups continued, “is the need for firms to have certainty as soon as possible about whether or not there will be delay.”
The groups urged Clayton to prioritize improving disclosure effectiveness for both variable annuity products and other annuity products registered as securities with the SEC, and urged the agency to adopt a “summary prospectus framework for variable annuities similar to that now used by mutual funds.”
Any fiduciary standard put forth by the SEC should also “not serve as a disincentive to sell annuity products with their unique lifetime income guarantee features,” the groups said.
But the Consumer Federation of America, a staunch advocate of Labor’s fiduciary rule, continues to see no need for a delay, and argues that changes to the rule at this point could carry “considerable risk.”
Micah Hauptman, financial services counsel for the consumer group, told Labor in a Monday comment letter that a “key purpose” of its request for information is to seek input that could “form the basis for new prohibited transaction exemptions or changes to the existing exemptions.”
Since the rule and PTEs were finalized, however, “firms have developed a variety of innovative, pro-investor approaches to implementing the rule and new investment products to ease that implementation,” Hauptman wrote.
As a result, “retirement savers are benefiting from broad access to both fee-based and commission advisory relationships, with fewer conflicts and lower costs, and with a wide array of investment products available to meet their needs and goals,” he said.
Contrary to the “dire predictions of the rule’s opponents, these developments clearly show that the existing rule and PTEs are not only workable, but working far better than the Department or the rule’s proponents could have predicted when the rule was finalized,” he continued.
CFA argued that “it is premature to consider sweeping changes to the rule and its exemptions just as they are beginning to deliver the dramatic, tangible benefits that proponents of the rule have long predicted.”
Instead, CFA urged Labor to focus on providing “additional guidance, based on the positive examples already available in the marketplace, for how the rule can be implemented efficiently and effectively under the existing PTEs.”
While it’s not only “unnecessary to provide different exemptions or make changes to the rule, doing so now carries considerable risk,” Hauptman told Labor.
The SEC, Hauptman said, “has been struggling with this [fiduciary] issue for the past decade without developing a clear roadmap for reform. There is simply no guarantee that the SEC will reach consensus on a rule.”
— Related on ThinkAdvisor: