DOL Fiduciary Rule Delay Language Emerges

The U.S. Department of Labor has announced a proposed extension of the applicability dates of the fiduciary rule and related exemptions, including the best interest contract (BIC) exemption, from April 10 to June 9, 2017. The announcement follows a presidential memorandum issued on February 3, 2017, which directed the department to examine the fiduciary rule to determine whether it “may adversely affect the ability of Americans to gain access to retirement information and financial advice.”

As the “new DOL” explains, the proposed extension is “intended to give the department time to collect and consider information related to the issues raised in the memorandum before the rule and exemptions become applicable.”

Bucking the expectations of some observers, the Trump administration is apparently disregarding the tradition that “economically significant” rulemaking, which this has been declared to be by the Office of Management and Budget, accept at least a 60-day public comment period. Instead, the Trump-lead DOL “will accept public comments on the proposed extension for 15 days following its publication.” The new proposal will be technically published in the March 2, 2017, edition of the Federal Register.

Advisers will understandably be a little hesitant to read into this latest development, given the mixed signals that have emerged from the Trump White House pertaining to the fiduciary rule and other regulations policed by Labor. There is not even a DOL secretary yet, and indeed, even if the 15-day comment period stands and the DOL delays the fiduciary rule’s initial implementation for two months, a June applicability date still presents a significant challenge for firms that have not fully prepared themselves for compliance. It remains entirely unclear whether the review that will occur in this two-month window will result in the actual elimination of the new fiduciary standard. Of course this is presumed based on Trump’s anti-regulatory agenda, but the actual process of gutting the fiduciary rule has proved massively complex already. 

Still, after so much speculation from industry sources, it is refreshing to hear the DOL spell out its intentions clearly for the difficult weeks and months ahead. Much of the text of this new rulemaking is dedicated to justifying the 15-day comment period, and in the document the DOL calls for industry sources to explain how they will be impacted by such a delay, rather than how they view the actual fiduciary rule. Accordingly, there is less of a focus on the actual merits of the fiduciary rule, which will presumably be left to whatever additional rulemaking may (or may not) come out of DOL during the 60-day delay/review.

NEXT: Reading into the new rulemaking 

It can be a little tricky to keep all the moving pieces straight, but this is how the DOL outlines its current position: “There are approximately 45 days until the applicability date of the final rule and the PTEs. The Department believes it may take more time than that to complete the examination mandated by the President’s Memorandum. Additionally, absent an extension of the applicability date, if the examination prompts the Department to propose rescinding or revising the rule, affected advisers, retirement investors and other stakeholders might face two major changes in the regulatory environment rather than one. This could unnecessarily disrupt the marketplace, producing frictional costs that are not offset by commensurate benefits.”

DOL officials suggest this newly proposed 60-day extension of the applicability date “aims to guard against this risk.” The extension would, DOL argues, “make it possible for the Department to take additional steps (such as completing its examination, implementing any necessary additional extension(s), and proposing and implementing a revocation or revision of the rule) without the rule becoming applicable beforehand.”

In this way, advisers, investors and other stakeholders would be spared the risk and expenses of facing two major changes in the regulatory environment, DOL posits. “The negative consequence of avoiding this risk is the potential for retirement investor losses from delaying the application of fiduciary standards to their advisers.”

It is easy to presume this new rulemaking is yet another death-rattle of the stricter fiduciary rule envisioned by the previous administration, but there really is fairly little in the newly emerged document to hint at how the President Trump and his leadership team want to proceed toward a final fiduciary solution. Advisers will clearly be watching closely for a sense of what the final fiduciary solution may be, and they can now get directly involved once again by either commenting on the 15-day delay or the presidential memorandum via www.dol.gov/ebsa.