The Department of Labor has issued a request for information on the fiduciary rule, comments from which could lead to an eventual delay of its scheduled implementation date.
The first set of questions in the RFI, for which the comment period ends in 15 days, addresses a possible extension of the applicability of certain provisions in the rule, whose full implementation is currently scheduled for January 1. These include the rule’s best interest contract exemption, which lets retirement brokers sell some commission-based products after signing an agreement with their clients, as well as class exemptions for certain principal transactions and prohibited transactions, according to the RFI.
The DOL notes that input from its previous comment period suggests “recent innovations” could form the basis of new compliance mechanisms — in particular the use of so-called “clean shares,” which standardize fees across share classes to reduce conflicts of interest in the sale of mutual funds. But commenters have also said that the industry may not be able to develop clean shares by the January 1 deadline, according to the DOL.
In its recent RFI, the regulator seeks input on the pros and cons as well as the risks and costs of any delay.
The rule, which purports to force retirement brokers to put clients’ interests first and reduce conflicts of interest, went only into partial effect June 9.
Labor secretary Alexander Acosta has said the administration of president Barack Obama, which spearheaded the rule, failed to address the claim that it could push out some Americans from affording retirement advice. Acosta has said the DOL would comply with a February directive from president Donald Trump to review the rule, which faces opposition from Republican lawmakers and several major industry groups.
The rest of the questions in the current RFI, for which the comment period ends in 30 days, address how the industry has fared since the June 9 applicability date, whether advisors have been able to provide a broad enough range of products since the implementation, and the costs and benefits of the exemptions granted ahead of the January 1 applicability date.
The DOL also asks about the potential impact of doing away with contract requirements under the best interest contract exemption, alternative approaches to mitigating or eliminating conflicts of interest, and whether a different approach could be used if the SEC devised its own set of standards, according to the RFI.
SEC chairman Jay Clayton said this week that the SEC will coordinate with the DOL on the fiduciary rule.
The SEC has been mulling its own version of the rule, which would apply to all financial advisors, for several years but has so far failed to move on it. Now, SEC Investor advocate Rick Fleming says a fiduciary rule coming from the commission could harm investors.
“Conflicting mandates” with those in the Dodd-Frank Act could in fact “dilute the existing standard for investment advisors in a misguided attempt to adopt a ‘harmonized’ standard for broker-dealers,” Fleming said in a report to Congress.
Published by Financial Advisor IQ June 30 2017
Written by Alex Padalka