While the Department of Labor fiduciary rule may be delayed, the risk of failure to comply are too great for firms to ignore the rule, two analysts say. At any rate, a future fiduciary standard is likely in some form.
A six-month delay announcement on the Department of Labor's fiduciary rule is expected any day now, followed by eventual repeal, analysts said.
“The Department of Labor fiduciary rule itself is not something that can be whisked away with the stroke of a pen,” said Bradley Campbell, of Drinker Biddle & Reath, a law firm that advises on DOL issues. “The rumors that we’re hearing are that the first action will be to delay the rule for about six months and then do a formal notice of comment for a longer delay, say a year, and a notice of comment on repealing or modifying the rule.”
Long term, repeal is likely, added Campbell, former assistant secretary of labor under President George W. Bush. But he noted that not only is the labor secretary not yet seated, but the key undersecretary positions remain unfilled. Trump nominated fast food CEO Andrew Puzder as his secretary of labor. Puzder's Senate confirmation hearing is set for early February.
Campbell and his colleague Fred Reish hosted a webinar today to discuss the status of the controversial DOL rule. The rule, which raises investment standards for anyone working with retirement funds, is set to begin taking effect April 10.
While a delay is likely, the stakes are too high for firms and advisors to count on it, Reish and Campbell agreed. Action needs to happen to be ready for the rule.
Conveniently, it is possible to go halfway on some key aspects of compliance.
“Rather than having full compliance ready to go, you can look at making incremental changes to try and prepare for the possibility” the rule survives, Campbell said.
For example, a “transitional” Best Interest Contract Exemption is allowable through the end of the year.
The BIC exemption requires disclosures, a signed contract and a commitment to act in the best interest of the client in order to accept commissions for selling variable and fixed indexed annuities.
Under the transitional BIC, advisors will need to disclose conflicts of interest and act as a fiduciary, Campbell explained, but can continue to accept current forms of compensation. The full BIC bans compensation such as trips and other incentives.
Reish and Campbell have several clients in the industry and said they are advising them to tune out the delay-and-repeal talk and be prepared to comply on April 10.
“We’ve had a lot of clients hoping they could get disclosures, if they need to be made, into January statements,” Campbell said. “Unfortunately, the timing on this is not making it ideal to do that.”
The analysts also questioned what will become of the two fiduciary rule FAQs issued by the DOL, as well as the exemption published last week allowing independent marketing organizations (IMOs) to act as financial institutions.
The Trump administrations issued a memo Friday ordering all departments to freeze work on regulations that haven’t been published until new officials conduct a review. This edict does not apply to the DOL rule, Campbell said, but would apply to the FAQs and the IMO exemption.
He guessed the administration isn’t worried about these items because they don’t “prevent the Trump administration from doing what it wants to do.”
As an aside, Reish was sharply critical of the IMO exemption, which is limited to IMOs with an average annual fixed annuity contract sales volume of at least $1.5 billion in premiums over each of the three previous fiscal years.
IMOs are unhappy with the exemption, claiming it doesn’t set viable criteria. Reish agreed.
“Some of the conditions are so onerous I think the department has shot itself in the foot by creating an exemption that’s so narrow that it doesn’t really meet the needs of the marketplace,” he said.
While the DOL rule may go in the trashcan, odds are high that Congress passes some form of fiduciary standard, Campbell said. Legislators might try to bring the Securities and Exchange Commission to the table to create a new standard, he added.
The Strengthening Access to Valuable Education and Retirement Support, or SAVERS Act, and the Affordable Retirement Advice Protection, or ARAP Act, are two proposals that would require Congress to vote to give the DOL authority to post its fiduciary rule.
The SAVERS Act would amend the internal revenue code and the ARAP Act would amend the Employee Retirement Income Security Act.
Whatever comes of the DOL rule, Reish said the fiduciary standard is likely to stay in some form.
“I think it’s beyond the compliance situation now,” he said. “It’s a business model.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com.
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