DOL Officially Proposes Delay of Fiduciary Rule

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By Sean Forbes

The Department of Labor’s fiduciary rule, which requires financial advisers to put their clients’ interest ahead of their own when handling retirement accounts, won’t be applicable until at least June 9 under a DOL proposal.

The proposal, issued March 1, comes in response to a directive from President Donald Trump to review the rule, which was set to become applicable on April 10. He ordered the agency to determine whether the rule would harm investors or increase litigation.

It was widely anticipated that the DOL would ask for a 180-day delay of the rule’s April 10 applicability date, but the department instead proposed limiting it to 60 days, until June 9, citing costs of a longer delay.

The department is offering a short window of time—15 days—for comments on its proposal. The DOL will also be taking comments for 45 days on the issues raised in Trump’s memo.

Major financial institutions such as Morgan Stanley, Merrill Lynch, Fidelity and Prudential have said they would comply with the rule whether it remains in place or is rolled back.

High Costs of Longer Delay

The DOL said it considered proposing a 180-day delay, but that it would be too costly to investors and those that must comply with the rule. The DOL estimated a 60-day delay would cost investors $890 million of those potential gains over 10 years, while saving $42 million in non-startup-related compliance costs. Those numbers would triple under an 180-day delay, the department said.

The department noted, however, that the costs and benefits of the proposed delay are “highly uncertain,” and asked for public input on the issue. “The Department invites comments as to whether the benefits of the proposed 60-day delay, including the potential reduction in transition costs should the Department ultimately revise or rescind the final rule, justify its costs, including the potential losses to affected retirement investors,” it said.

Expectations

The proposed delay was immediately praised by lobbying groups such as the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce, which have slammed the rule and said that it has already negatively disrupted the marketplace.

“We are already seeing the negative consequences of the rule on the marketplace with some firms announcing that they will no long offer certain products, others no longer offering any IRA brokerage accounts, firms reducing web based financial education tools, and others announcing that advice to clients with lower balanced accounts will be discontinued,” SIFMA said in a statement.

“Delaying the rule is imperative to avoid further client confusion and market disruption, as firms approach the drop-dead date to notify tens of millions of customers of service changes to their accounts because of the rule, ultimately making retirement savings more difficult for many investors,” it said.

The rule’s supporters are caught somewhere between expecting the worst but hoping for the best.

“Unfortunately, this feels like the first step towards eliminating the rule as it is currently written,” Steve Gordon, executive director at AndCo Consulting LLC, a registered institutional investment consulting firm in Orlando, told Bloomberg BNA in an email. “That said, I hope that the DOL will come back to the table with something that still preserves the key element of transparency and the requirement that anyone giving advice to a participant place the participant’s interests first, and should be held to fiduciary standards as a result.”It’s more likely that the rule will be revised than rescinded, Knut A. Rostad, president of the Institute for the Fiduciary Standard in Washington, told Bloomberg BNA. But that revision also is likely to mean that the rule gets through without its enforcement measures.

The DOL “will say that they have made x, y and z changes to allow greater choice and to reduce costs,” Rostad said. “But what they will have done is to take away the teeth of it. So they will believe that they have the best of both worlds.”

To contact the reporter on this story: Sean Forbes in Washington at sforbes@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

Text of the proposed rule is at http://src.bna.com/mCm. Text of President Trump's memo is at http://src.bna.com/mCn.

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