The dust has barely settled between U.S. Department of Labor regulators and the financial advisory industry over the finer points of a proposed fiduciary rule and both sides are ready to square off over the implementation sequence of the rule.
The American Council of Life Insurers said the DOL needs to give the industry at least three years to implement the proposed rule from the date the final version is published in the Federal Register. That time is necessary to give advisors and carriers more time to plan to implement disclosure policies, advisor training and supervisory procedures, ACLI officers said in a press briefing today.
DOL officials say they want to implement the 700-page rule within eight months of publication of the final version, though DOL officials are open to a “short-term delay” for advisors who elect to operate under the rule’s Best Interest Contract Exemption.
“Although the Department does not believe that a general delay in the application of the exemption’s requirements is warranted, it recognized that a short-term delay of some requirements may be appropriate and may not compromise the overall protections created by the proposed rule and exemptions,” the DOL said.
A previous version of the fiduciary rule, also known as the conflict of interest, was killed in 2010 after industry opposition, but not before the DOL had the chance to hear from many industry witnesses who saw no reason to delay implementing the rule.
Financial advisors and industry are sensitive to the proposed rule implementation schedules because it’s so broad, imposing as it does some of the most far-reaching changes to retirement plan advice since the passage of the Employee Retirement Income Security Act of 1974.
The Obama administration, public interest groups, consumer watchdog organizations and financial advisors bound by fiduciary standards of conduct have generally backed Labor Department’s proposals as a way to improve investment advice received by millions of Americans who are turning 65 by the thousands every day.
Industry groups representing brokers, financial advisors, insurance carriers and the Financial Industry Regulatory Authority have blasted many parts of the proposal as expensive, unworkable and misguided.
They warn that the proposed regulation would have the unintended effect of denying millions of Americans the financial advice they need as advisors reorient their practices to serve higher-paying clients.
As the DOL and industry dig deeper into the fine print of the proposed rule and prepare for serious back-and-forth on how to protect retirement investors, attention will slowly turn to the implementation phase of rulemaking.
A final version of the proposed rule will be published after a series of public hearings in August and even — possibly — another comment period in the fall.
Once all the comments are in, the DOL publishes the rule’s final version — likely next year — without any further input.
“We won’t have a chance to see it before it gets published in the Federal Register and that will be when we think the clock should start ticking,” said James H. Szostek, vice president of taxes and retirement security with ACLI, who spoke during a press briefing Wednesday morning, hours after the ACLI and other industry groups filed comment letters with the DOL before the close at midnight Tuesday of the first comment period on the DOL’s proposed fiduciary rule.
DOL wants the rule to become effective 60 days after publication in the Federal Register with the requirements becoming applicable eight months after publication with “potential exceptions.”
“For those fiduciary investment advisers who choose to avail themselves of the Best Interest Contract Exemption, the Department recognizes that compliance with certain requirements of the new exemption may be difficult within the eight-month timeframe,” the DOL said in published comments.
In a written comment letter filed with the DOL yesterday, Szostek wrote that compliance would be “a major undertaking for financial institutions and advisers,” and that the rule “will not be administrable within the proposed applicability date of 8 months from the publication of a final exemption.”
The industry has already resisted the speed with which the DOL wants to implement the fiduciary rule, also known as the conflict of interest rule.
The initial 75-day comment period that closed Tuesday was originally scheduled to close July 6, but was extended by two weeks after industry groups asked for more time to review the proposed rule.
As a result, the initial comment period has lasted 90 days, longer than usual, and the department will hold public hearings during the week of Aug. 10.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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