While the Department of Labor delayed the controversial Obama-crafted fiduciary rule for 60 days, it also expressed surprising support for the regulation.
“The DOL clearly does not back down from the Fiduciary Rule and exemptions as a general matter,” wrote Drinker Biddle & Reath in a client alert.
The 60-delay was published Friday in the Federal Register and moved the fiduciary rule “applicability date” from April 10 to June 9. The election of regulation foe Donald J. Trump was thought to mean the end of the fiduciary rule.
Drinker Biddle, whose attorneys represent several insurance marketing organizations, isn’t so sure. The firm points to this passage in particular:
“(The DOL) ... concluded that it would be inappropriate to broadly delay application of the fiduciary definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors.”
In effect, the DOL is confirming that the new definition of fiduciary advice and the “best interest” standard of conduct (and other Impartial Conduct Standards) will apply on and after June 9, Drinker Biddle attorneys wrote.
Trump ordered the DOL to delay the rule in a Feb. 3 memorandum. In the meantime, the DOL released a bulletin alerting the financial services industry that it will not pursue enforcement of the rule in the short term.
It was thought by some analysts that the DOL would continue to delay the rule while it worked to dismantle some of the unpopular aspects. Instead, it seems the only positive result is more time to comply with the rules, analysts say.
Prohibited Transaction Exemption 84-24 will remain available for all annuity recommendations – fixed, fixed indexed and variable annuities – until Jan. 1, 2018, Drinker Biddle noted. The “impartial conduct” standards will apply under PTE 84-24 on June 9, but the more onerous best interest contract exemption will not come into play until Jan. 1.
The three impartial conduct standards are acting in the client’s “best interest,” make no misleading statements, and accept only reasonable compensation.
“Perhaps the biggest beneficiaries are firms involved in annuity sales, as they now have until the end of the year to figure out how to live with the new regulatory scheme,” the Drinker Biddle alert read.
Continue Selling Annuities
IMOs and FMOs that would not qualify as “financial institutions” under the BICE will be able to continue selling all types of annuities throughout 2017, the alert said.
“This will give the DOL time to re-evaluate and finalize the proposed BIC Exemption for insurance intermediaries,” the alert said.
Those firms who do qualify as financial institutions under the BICE will be able to choose between PTE 84-24 and a transitional BICE – when recommending all types of annuities - until Jan. 1, 2018.
Drinker Biddle summarized the DOL’s rationale for its position:
• There is widespread acceptance that the Impartial Conduct Standards are appropriate;
• Because firms and advisors will be acting under the relaxed transition rules, the risk of litigation, especially class-action litigation, is at least reduced in the IRA context, which was a major concern expressed by those who oppose the rule and exemptions;
• The approach selected is consistent with the DOL’s “compliance-first posture toward implementation” – that is, the DOL’s previously announced focus “on compliance assistance, both in the period before Jan. 1, 2018, and for some time after”;
• The approach provides more certainty for the financial services industry; and
• The DOL can always change things later on.
A fiduciary rule is likely, agreed Jamie Hopkins, associate professor of taxation for the American College of Financial Services. The timing just isn’t favorable to make significant changes and complete public notice and comment requirements within a 60-day window, he said.
“Now, we could see changes to things like the BICE before the end of the year and perhaps the removal of the class action lawsuit,” Hopkins said. “But, it does appear that the definition of investment advice might stick.”
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 protected].