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Trade Groups Urge DOL to Extend Fiduciary Rule Compliance Date

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What You Need to Know

  • Ten industry trade groups expressed concern that many small firms may have been less aware of the Dec. 20 compliance date.
  • The date should be extended at least 6 to 12 months, the groups say.
  • Some firms are hesitant to adopt material new changes that may need to be revisited soon.

Industry trade groups are urging the Labor Department to extend the Dec. 20 compliance date for its fiduciary advice rule.

The Biden administration allowed the Trump administration’s fiduciary prohibited advice exemption, or PTE, to go into effect in mid-February.

The regulation, called “Improving Investment Advice for Worker & Retirees,” is “broadly aligned” with the Securities and Exchange Commission’s Regulation Best Interest, according to Labor’s Employee Benefits Security Administration.

However, current Labor Secretary Marty Walsh said in mid-June that Labor plans to issue a new proposed rulemaking to update the definition of “fiduciary” under the Employee Retirement Income Security Act. That proposal could come by December.

In a recent letter, 10 trade groups — including the Securities Industry and Financial Markets Association, the Insured Retirement Institute, the U.S. Chamber of Commerce and the Investment Company Institute — asked the acting head of EBSA, Ali Khawar, to extend the temporary enforcement policy at least 6 to 12 months beyond Dec. 20.

The groups “also ask that EBSA pause plans to propose further changes to the rules for investment advice fiduciaries until there is sufficient evidence that further changes are needed,” according to an IRI spokesman.

If Labor does go forward with a new fiduciary rule proposal, the groups said, the temporary enforcement policy should stay in place for a reasonable period of time after that rulemaking is completed.

The groups expressed concern that “many small firms may have been less aware” of the Dec. 20 expiration of the temporary enforcement policy.

“For the larger firms, this has been an ongoing effort that in many cases began months ago by devoting substantial resources toward compliance,” the groups state. “Such resources are not readily available to small firms.”

The resource disadvantages small firms face, the groups continued, “may prohibit them from being able to comply on December 20, potentially leaving them with no choice but to reject fiduciary status. This could potentially create an unlevel playing field between retirement investors who utilize large firms versus small firms as their advisors.”

The groups also said that they “continue to hear concerns from firms that are very hesitant to accept fiduciary status or firm up new procedures until they have an idea of how PTE 2020-02 and the other exemptions may be enhanced or modified, as reflected in the upcoming proposed guidance and further fiduciary rulemaking.”

Firms, the groups told Labor, “have worked extensively to comply with Regulation Best Interest and are working feverishly” to comply with PTE 2020-02.

“In light of all the changes in this area during the last five years, some firms are hesitant to adopt material new changes that may need to be revisited again soon, based on new proposals that may be released around the same time that compliance is required” with the PTE, the groups continued. “Some firms may very reasonably hold off embracing the use of the PTE until they have an idea of what it [a new fiduciary rule] will ultimately look like.”

Rollover Advice

Attorneys at Eversheds Sutherland note in a recent alert that solutions for rollover advice become paramount as the Dec. 20 compliance date nears.

It now has become incumbent on firms to accelerate compliance efforts if the Dec. 20 date is to be met, the attorneys state, “and in particular to implement PTE 2020-02 or an alternative solution if they are or may be serving as a fiduciary in rollover interactions.”

In late July, President Joe Biden nominated Lisa Gomez, a partner at Cowen Weiss and Simon in New York, to head EBSA.

Gomez, who specializes in employee benefits law, joined the firm in 1994 and became a partner in 2002.