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Regulation and Compliance > Federal Regulation > DOL

Vanguard, TD Ameritrade Cheer DOL’s Move to Delay Rule

By Bernice Napach

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Vanguard is “very pleased” that the Labor Department is proposing to delay full compliance with the fiduciary rule for retirement accounts until July 2019, according to a statement emailed to ThinkAdvisor.

The CFP Board of Standards is not. It’s disappointed with the delay, which is “unnecessary” because the rule as is was “well thought out and well reasoned based on extensive input from all stakeholders,” says Maureen Thompson, its vice president of public policy.

(Related: DOL Seeks 18-Month Delay for Fiduciary Compliance)

These are just a couple of the reactions to the decision the Labor Department disclosed Wednesday in filings in a court case challenging the rule.

In addition to delaying full compliance for 18 months, from Jan. 1, 2018 to July 1, 2019, the Labor Department is considering relaxing the rule’s restrictions on certain transactions, including the sale of some insurance products, presumably including variable annuities, and IRA rollovers from 401(k) plans, and the requirements for a best-interest contract exemption (BICE), which would allow such transactions.

The agency has filed proposed amendments for those three exemptions with the Office of Management and Budget, but no details are available yet, which is creating uncertainty for financial firms.

“There’s no question that the uncertainty makes it difficult for firms to prepare and raises the questions about whether all the hard work done to comply and modernize systems will pay off,” says Aron Szapiro, director of policy research at Morningstar.

For investors — and advisors — there’s also the question about enforcement of the rule if the BICE is watered down eventually or replaced with some other mechanism.

“The best-interest standard needs to be enforced. Otherwise this is a standard in name only,” says the CFP Board’s Thompson. She says there are other approaches that could be taken to enforce the fiduciary rule and the CFP Board is “happy to entertain other ideas,” but any approach taken needs to insure that the rule can “be enforceable and enforced.”

Vanguard prefers a “streamlined” BICE. In its comment letter to the Labor Department’s recent request for information about the rule, the company said the BICE “should be significantly simplified by limiting it to the impartial conduct standards, removing the exemption’s provisions encouraging litigation as a means of enforcement and expanding the exemption to cover more retirement investors and services.”

Impartial conduct standards require that an advisor provide investment advice in the best interest of retirement investors, charge no more than reasonable compensation and not make any materially misleading statements to investors.

Vanguard urged the department to delay full compliance by 12 to 18 months and now says the postponement will provide the department the opportunity to improve the rule.

TD Ameritrade is also pleased with the delay. In a statement sent to ThinkAdvisor, the firm said the delay would have little impact on its practices but “all parties involved should take the time to get it right, to reduce complexity and confusion for investors and the firms that serve them.”

During what is expected to be a longer transition time, advisors should keep in mind the “broader transformation going on in the industry that transcends the DOL rule,” says Rob Cirrotti, managing director of BNY Mellon’s Pershing. “To remain competitive in a time of unprecedented change, firms need to look beyond the uncertainty around the rule and focus on how they can transform their retirement advisory business for the future,” including operating and governance models, technology and product platforms, or talent development approaches.”

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