On June 9 of this year, the rule’s impartial conduct standards went into effect, requiring all advice on qualified retirement assets to be in clients’ best interests.
The Labor Department is currently considering revisions to the rule, per a memorandum issued by President Trump.
A streamlined transaction exemption that would account for new investment product innovations, and a sellers’ exemption, which would allow brokers and insurance agents to sell investments for commissions without triggering a prohibited transaction, are reportedly being considered.
Under the fiduciary rule, such sales would require the Best Interest Contract Exemption, which includes substantial warranties, disclosure requirements, and a private right of action that allows investors to bring class-action breach-of-contract claims.
Delay of fiduciary rule not a done deal
Large swaths of the financial and insurance services industry will welcome the news that Labor is seeking a delay.
In comment letters, scores of stakeholders argued industry needs more time to make the operational adjustments to comply with the rule.
But a delay is not guaranteed. Nor can OMB be expected to immediately sign off on Labor’s request, says Erin Sweeney, a labor attorney with Miller & Chevalier and a former regulator at Labor’s Employee Benefits Security Administration.
OMB has 60 days to sign off on the proposal, or could extend its review of Labor’s request on a one-time basis for another 30 days, meaning industry may not know whether the delay will be green-lighted for 90 days, said Sweeney.
OMB’s Office of Information and Regulatory Affairs has to determine if the Labor Department has substantial new reasons for delaying the rule.
As part of the process of determining that, stakeholders will have access to meetings with OMB.
“Everybody and their kid sister is going to line up to meet with OMB—both proponents and opponents of the rule,” Sweeney said.
AARP and other powerful consumer advocates argued in comment letters to Labor that industry has had more than enough time to comply with the rule, which proponents say was implemented after an exhaustive rulemaking process that included considerable input from industry.
One advocate for the rule, Better Markets, a non-partisan think tank that advocates for transparency in financial markets, said a delay of or revisions to the rule may be subject to legal challenges.
Sweeney says any delay will have to be justified with valid regulatory reasoning and not simply issued on political grounds.
“We don’t know what the basis for this is,” said Sweeney, who noted that the rule’s impartial conduct standards were implemented, despite industry objections, because Labor did not have sound justification to further delay that part of the rule.
“In order to get the delay, both Labor and OMB have to have their ducks in a row—it can’t be made for political reasons if it is to survive a legal challenge,” added Sweeney. “If the basis for delay is that industry is not ready for this rule, then that would be a different standard that OMB will have to consider.”