While detractors of the Labor Department’s plan to delay the remainder of its fiduciary rule continued to tell Labor that such a delay would be costly for investors, supporters of the delay argue that it’s all but needed in order to make revisions, propose new streamlined exemptions and coordinate with the Securities and Exchange Commission.
Labor on Aug. 31 set a 15-day comment period for its proposed 18-month delay — from Jan. 1, 2018 to July 1, 2019 — to the more onerous prohibited transaction exemptions of its fiduciary rule. The comment period expired Friday.
With comments both for and against a delay in hand, all bets are on Labor forging ahead with the 18-month delay.
“DOL needs to propose its changes to the [best-interest contract] exemption and related exemptions,” said Steve Saxon, partner at Groom Law Group in Washington. “In order to obtain comments on these changes and hold hearings, DOL would need to offer these changes this fall to give providers time to get ready before July 2019.”
Micah Hauptman, financial services counsel for the Consumer Federation of America — a staunch fiduciary rule advocate — added in a comment to ThinkAdvisor that “It’s pretty clear that the DOL has predetermined the outcome and is prepared to engage in irrational action to get there. We strongly urge them to reconsider their decision” to delay.
The delay is rather “a stay,” Hauptman said, “aimed at effectively repealing the exemptions’ critical conditions and must be justified as such.”
In CFA’s Friday comment letter to Labor, Hauptman writes that “to characterize what the department is proposing as a ‘delay’ is simply incorrect. Delay implies that the rule will be implemented at the end of the proposed 18-month delay period. However, that’s clearly not the department’s intent here.”
Rather, Hauptman continued, “the intent is to grant what is effectively a revocation of the applicability of the most consequential provisions of the rule, by staying them, with the goal that implementation of these provisions never occurs.”
Duane Thompson, senior policy analyst at Fi360, a fiduciary training and technology company, agrees that despite comments for and against a delay, the odds are “99 to one it goes through.”
The Financial Services Institute told Labor during the comment period that FSI agrees “that a delay is necessary and appropriate to allow careful consideration of comments, evaluate the rule’s potential undue burden, and to identify potential alternatives that could reduce costs and increase benefits to affected parties without compromising investor protections.”
David Bellaire, the group’s general counsel, told Labor that FSI “also supports extending the temporary enforcement policy, during which the DOL will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply, for the same period.”
Bellaire was referring to Labor’s Field Assistance Bulletin, also issued on Aug. 31, setting out an enforcement policy on arbitration limitation in the rule’s best-interest contract exemption, or BICE, and the principal transaction exemption.
The delay would allow for “interagency coordination between Labor, the SEC and other financial regulators on a uniform fiduciary standard of care applicable to all financial advisors providing personalized investment assistance to retail clients,” Bellaire wrote.
Kent Mason, an attorney with Davis & Harmon in Washington who supports the delay, criticized Labor in his comment letter for not acknowledging the “mountain” of new data that has come in about the rule’s harm.
“In the preamble to the proposed delay, DOL continues to rely exclusively on its 2016 economic analysis, without even acknowledging the mountain of new data that has been submitted to DOL over the last six months, showing that that analysis was wrong,” Mason said. “This is very disappointing and is not consistent with the legally applicable notice and comment process.”
There were “enormous problems” with DOL’s analysis, Mason told ThinkAdvisor, “a number of which have already been shown to be wrong.”
For example, Mason says, the following conclusions from the analysis have been shown to be wrong:
- DOL stated that access to advice would not be adversely affected.
- DOL stated that advice would remain affordable to small investors.
- DOL found that the annuity market would not be harmed.
The new data, Mason wrote in his letter, shows “widespread loss of access to investment advice, sharp increases in cost of advice and a devastating effect on annuitization.”
The American Council of Life Insurers urged Labor to move “as quickly as possible” to finalize the delay, as the “provisions at issue” are scheduled to become effective in a little over three months.
“We agree with the department’s concern that, without a delay in the applicability dates, regulated parties may incur undue expense to comply with conditions or requirements that the Department ultimately determines to revise or repeal, and further attendant investor confusion will ensue,” ACLI said.
— Check out Sen. Warren: Firms Don’t Need DOL Rule Delay. Just Ask Their CEOs on ThinkAdvisor.