DOL Publishes Delay of Fiduciary Rule Until July 2019

By John Hilton

The Federal Register will publish a proposed rule tomorrow to delay phase two of the Department of Labor fiduciary rule by 18 months to July 1, 2019.

Delay documents were announced Aug. 9, but inched closer to becoming official this week when the Office of Management and Budget completed its review and did not change the dates. OMB announced that it changed something with the rule, but legal experts say we might never know what the agency did.

"Unfortunately, they don't need to tell us what changes OMB recommended that DOL subsequently incorporated," said Erin Sweeney, a lawyer with Miller & Chevalier in Washington, D.C.

DOL will announce a short comment period, then send a final rule to OMB for review and publication. The process should wrap up in a couple months, experts say.

Phase two of the rule deals with exemptions, which regulate the sale of annuities sold with retirement funds. In particular, the rule includes the Best Interest Contract Exemption, which requires a financial institution to accept liability for each contract and gives clients the right to sue over investment advice.

The delay is a big win for the financial services industry, as the effective date of the most punitive measures in the rule is pushed into the horizon. The aspects of that rule might never take effect if the DOL, as expected, opts to make changes following more data collection in the coming months.

Phase one of the DOL rule took effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation. Those are known as Impartial Conduct Standards and are already cutting off access to financial advice for small savers who need it most, said Dale Brown, president and CEO of the Financial Services Institute.

"We hope the DOL uses the proposed 18-month delay to coordinate with regulators, including the SEC, to simplify and streamline the rule," he added.

Still, opponents are far more concerned with phase two rules that establish a class-action right to sue and could make it difficult for independent agents to sell through independent marketing organizations. Without the latest delay, the BICE will be required to sell fixed indexed and variable annuities beginning Jan. 1, 2018.

The Trump administration has delayed the rule several times and, in a Feb. 3 memo, the president ordered the DOL to study whether it will limit retirement savers' access to advice.

That study will take months to complete, time the DOL will have once the delay officially takes effect.

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].

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.