After months of speculation over the fate of the Department of Labor’s fiduciary rule, the regulator has now proposed pushing back the final implementation of the best-interest standard by 18 months, the Wall Street Journal writes. The delay will likely lead to a significant revamp of the rule, which purports to require retirement account advisors to put clients’ interests first, experts tell the paper.
The DOL submitted a proposal Wednesday to the Office of Management and Budget that would delay the deadline for final compliance with the rule from January 2018 to 2019, according to the Journal. The DOL also says that it’s weighing easing restrictions on some prohibited transactions as defined by the rule, such as individual retirement account rollovers and insurance products, including annuities, the paper reports.
The delay proposal, expected to be published Thursday, was mentioned in a court document in relation to a lawsuit in the U.S. District Court for the District of Minnesota brought by Thrivent Financial for Lutherans, the paper reports. The fraternal benefit society argues that the ban on class action waivers in the DOL’s rule violates the Federal Arbitration Act, and its suit is one of several brought against the rule in addition to legislative challenges from GOP lawmakers.
The rule went into only partial effect June 9, following a 60-day delay prompted by a February memorandum from president Donald Trump to further review the rule. Later that month, the DOL signaled that it was considering a delay to the January deadline in a request for information.
The delay gives the Labor Department more time for a review as well as for the industry to contribute further comment, according to the Journal.
The rule’s reach could be reduced significantly if the DOL expands exemptions, although the rule itself probably isn’t going away, Jamie Hopkins, a professor at the American College of Financial Services, tells the paper. The DOL didn’t immediately make a comment to the Journal.
Consumer protection groups view the delay with concern, the paper reports. Barbara Roper, director of investor protection at the Consumer Federation of America, tells the Journal that the delay contributes to uncertainty over the rule’s final fate, which she says is the biggest impediment for investors to derive its benefits. Some industry execs, meanwhile, welcomed the proposal, with Ronald Kruszewski, chief executive at Stifel FinancialCorp., telling the paper that the DOL’s review takes into account “protecting consumers and protecting choice.”
Opponents of the rule argue that the rule will squeeze out less affluent and less active investors from the advice market. Earlier this week, the Insured Retirement Institute said in a letter to the DOL that around 155,000 of its members’ clients had their accounts “orphaned,” or dropped from being serviced by an advisor, as a result of the rule already, and that many more were expected to be affected as the implementation of the rule proceeded.
Article published by Financial Advisor IQ August 10 2017
Written by Alex Padalka