WASHINGTON (Legal Newsline) - Last week, the U.S. Department of Labor released a measure officially delaying the implementation of its controversial new fiduciary rule.
The DOL announced its 60-day extension of the applicability dates of the fiduciary rule and its related exemptions Tuesday.
The department released its final rule in April 2016. The rule mandates financial professionals who service individual retirement accounts, including IRAs and 401(k) plans, to serve the “best interest” of the savers and disclose conflicts of interest.
However, the DOL said last month it would move forward -- under the direction of President Donald Trump -- with its efforts to delay the April 10 applicability date of the new rule.
The department said under its proposal the applicability date of the rule and related exemptions would be extended to June 9.
The delay, which was published in the Federal Register Friday, will take effect immediately, according to the DOL.
Written disclosure requirements and the full best-interest contract exemption are still scheduled for Jan. 1, 2018 implementation, it said.
“Based on its review and evaluation of the public comments, the Department has concluded that some delay in full implementation of the Fiduciary Rule and PTEs (Prohibited Transaction Exemptions) is necessary to conduct a careful and thoughtful process pursuant to the Presidential Memorandum, and that any such review is likely to take more time to complete than a 60-day extension would afford, as many commenters suggested,” the final delay rule states.
“At the same time, however, the Department has concluded that it would be inappropriate to broadly delay application of the fiduciary definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors.”
The fiduciary rule and its exemptions followed an “extensive” public rulemaking process, the DOL noted, in which the department evaluated a “large body of academic and empirical work on conflicts of interest,” and determined that “conflicted advice” was causing harm to retirement investors.
The DOL said under the terms of the extension, advisers to retirement investors will be treated as fiduciaries and have an obligation to give advice that adheres to “impartial conduct standards” beginning on June 9.
“These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services and refrain from making misleading statements,” the department said in a news release.
The DOL’s announcement follows Trump’s memorandum, issued Feb. 3, directing the department to review the rule and determine whether it may “adversely affect” the ability of Americans to gain access to retirement information and financial advice.
The department accepted public comments on its proposed extension for 15 days following its March 2 publication in the Federal Register.
The DOL said comments on issues raised in the presidential memorandum would be accepted for 45 days.
“The department has requested comments on the issues raised by the presidential memorandum, and related questions,” it said last week. “The department urges commenters to submit data, information and analyses responsive to the requests, so that it can complete its work pursuant to the memorandum as carefully, thoughtfully and expeditiously as possible.”
The DOL said from now until Jan. 1, 2018, when all of the exemptions’ conditions are scheduled to become fully applicable, it intends to complete its review under Trump’s memorandum and decide whether to make or propose further changes to the fiduciary rule or associated exemptions.
“In the Department’s judgment, Plan and IRA investors, firms, and advisers all will benefit from the balanced approach set forth above,” the final delay rule states. “Firms and advisers will be given additional time for an orderly transition and will not be required to immediately provide the notices, disclosures, and written commitments of fiduciary compliance that would otherwise be immediately required under the BIC Exemption and Principal Transactions Exemption.
“Also, more controversial provisions -- such as requirements to execute enforceable written contracts under the Best Interest Contract and Principal Transactions Exemption, and changes to PTE 84-24 (other than the addition of the Impartial Conduct Standards) -- are not applicable until January 1, 2018, while the Department is honoring the President’s directive to take a hard look at any potential undue burdens and decides whether to make significant revisions.”
The Financial Services Roundtable, which filed public comments in support of the DOL’s delay proposal last month, said it welcomed the department’s decision to postpone the rule’s applicability date.
“This overly complicated rule is harming access to affordable retirement advice and services, while limiting choices for hardworking Americans saving for the future,” CEO Tim Pawlenty said in a statement Tuesday. “Today’s announcement will allow time for DOL to begin its review of, and potentially revise or rescind, the rule in accordance with the President’s February memorandum.”
But FSR said it’s concerned that the study contemplated by the memorandum will require more than 60 days.
Without a longer extension, retirement savers would be subject to unnecessary “disruption and confusion,” it argues.
“A ‘best interest standard’ should be properly crafted by the appropriate regulator in a way that reduces red tape but maintains important consumer protections,” FSR said.
“FSR believes the Securities and Exchange Commission is the appropriate regulator to adopt and implement a best-interest standard for all brokerage accounts (including IRAs) held by retail customers, and the DOL should fully rescind its rule on this matter.”
Supporters of the rule, in particular a group of House Democrats, argued against a delay. Implementing the rule on schedule was necessary to “protect workers’ hard-earned retirement savings,” the federal lawmakers argued in a letter to Acting Secretary of Labor Edward Hugler last month.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.