Analysts: DOL Rule Could Be Pushed Out to 2020

One possible scenario has the Department of Labor delaying the phase two effective date of its fiduciary rule by one year, and giving financial services a year beyond that to comply.

That would push the effective date from Jan. 1, 2018 to Jan. 1, 2020. Bradford P. Campbell, counsel at Drinker Biddle & Reath, agreed the timeline seems plausible.

"I think that is a reasonable time to gather the data and do the review work that the president has ordered," Campbell said during a webcast today. "A year is sort of the minimum that you would need to be able to do all that work."

Campbell previously headed the Employee Benefits Security Administration (EBSA), which was charge of enforcing the Employee Retirement Income Security Act (ERISA) during the Bush administration.

In a Feb. 2 memo, President Donald J. Trump ordered the DOL to research the impact the fiduciary rule will have on retirement savers and their access to investment advice. That led the department to issue a Request For Information published earlier this month.

A consensus for a delay is growing within financial services circles.

Phase One In Effect

Portions of the fiduciary rule went into effect June 9, requiring agents and advisors to act as fiduciaries, make no misleading statements, and accept only "reasonable" compensation. It's the remaining aspects of the rule covered by the new RFI -- the exemptions.

Many of the DOL queries focus on those exemptions and how they can be streamlined. The deadline to submit comments is Aug. 7, and Campbell said anyone who has an opinion needs to comment, even if it's a repeat of a previous submitted comment.

"We need to treat this comment period that is open right now as if it’s 2015 again," he said. “If it’s not in this RFI, it’s going to be very hard to fight about it later.”

A delay will likely come very quickly following the close of the comment period, Campbell explained. The DOL will not want a repeat of the spring delay, which came just days before the April 10 phase one effective date.

The lateness of the delay gave financial services companies little choice but to spend the time and money as though the rule were going to take effect, Campbell noted.

"I think they're going to try and be a few months ahead of that in issuing a rule delay," he said. "So I think we'll see that move on a fast track."

The work the department can do to change the regulation is far and away the best hope for change now, Campbell said. House Republicans continue to push various bills to kill the fiduciary rule, he said, and might even pass one.

But any legislation of that nature is highly unlikely to pass the Senate, where 60 votes are needed to cut off debate on a bill. The GOP has a slim 52-48 majority in the upper chamber.

Lawsuit Rights Controversial

As for potential changes during the delay, not surprisingly, Campbell said the Best Interest Contract Exemption is likely to be weakened. It requires significant disclosures, and a signed contract with the client. That contract forms the basis of litigation liability.

Removing the class-action lawsuit from the BICE is a good possibility, Campbell said, basing his opinion on statements the DOL has made so far. If the class-action right isn't scratched, it will cause problems in the courts, he predicted.

"You’ll end up with kind of an odd result if county judges in Mississippi, Alabama, Texas and wherever all start taking their own interpretations of what the new fiduciary standards are and then applying them with their state contract laws," Campbell said.

"You’re going to end up with some very bizarre and potentially contradictory results, which is going to make it very difficult to administer any sort of uniform standards."

A delay will make even more likely the DOL and the Securities and Exchange Commission end up working together on a fiduciary standard the industry can live with, Campbell said.

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].

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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]. Follow him on Twitter @INNJohnH.