DOL Asks for Two-Month Delay of Fiduciary Rule Applicability
The Department of Labor on Wednesday proposed delaying implementation of its controversial fiduciary rule to June 9, 2017 from the previous start date of April 10.
The proposal will be published in the Federal Register on Thursday, inviting comments for a 15-day period on issues such as whether the extension reduce brokerage and insurance firms’ transition costs should DOL ultimately revise or rescind the final rule.
It also calls for a 45-day comment period on President Trump’s order to the department to examine whether the fiduciary duty rule could adversely affect American’s access to retirement information and financial advice, and whether it should be revised or revoked.
“There are approximately 45 days until the applicability date…and the Department believes it may take more time than that to complete the examination mandated by the President’s Memorandum,” wrote Timothy Hauser, the deputy assistant secretary of the DOL’s Employee Benefits Security unit who signed the 31-page rule delay proposal.
Implementing a rule that could ultimately be revised or revoked “could unnecessarily disrupt the marketplace, producing frictional costs that are not offset by commensurate benefits,” wrote Hauser, a key backer of the rule that his unit created over more than five years during the Obama administration. But he also noted that the 60-day delay is “economically significant” because of the risk of depriving retirement investors of the benefits of having fiduciary standards applied to their advisors.
Some consumer advocates took umbrage at the proposal. “I find it very difficult to see how the Department could justify a delay,” said Barbara Roper, director of investor protection at the Consumer Federation of America.
The fiduciary rule aims to reduce conflicts of interest between advisors and retirement account customers by requiring advisors to make recommendations based on customers’ best interests rather than on selling products under the current standard of “suitability” customers’ risk and time horizons.
Under the suitability standard, advisors can pick products that are most remunerative to them even if they erode an investors’ optimal returns.
President Trump’s order on Feb. 3 that the agency review the fiduciary rule has confused brokerage firms, some of whom fear legal liability from violating the rule’s tight exemptive relief if they offer commission retirement accounts that are product-oriented. On the other hand, several firm executives have said that they will stick with many of the fiduciary principles since they have spent heavily to retool their sales and compliance systems.
—Jed Horowitz contributed to this story.