Regulators Seek Fresh Input on Fiduciary Rule

The financial services industry will have 15 days from tomorrow to submit comments on the extension of the applicability date of provisions of the fiduciary rule, the Department of Labor has announced in a request for information (RFI).

In addition, the industry will have 30 days from tomorrow to submit comments regulators could use as the basis for changes and revisions to the fiduciary rule and its exemptions.

A copy of the RFI is available here for download and comments can be submitted electronically at [email protected].

The RFI offers clues to the direction DOL regulators under the Trump Administration and the new Labor Secretary Alexander Acosta intend to take with regard to streamlining aspects of the fiduciary rule, which sets new parameters for investment advice.

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.

This is the fifth request for public comments under the Administrative Procedure Act since DOL undertook this rulemaking in October 2010, and the second in the last four months, according to Eversheds Sutherland, a law firm.

A sixth iteration could come later this year, in connection with any proposed changes to the Final Rule and/or delay of the Jan. 1, 2018, date for compliance with the full conditions of the Best Interest Contract Exemption, the Principal Transaction Exemption and PTE 84-24, Eversheds said in a note to clients June 30.

Regulators have asked the industry for thoughts on the following items, among others:

• Would “clean shares” of mutual funds, shares that don’t carry a sales load or come with a 12b-1 fee, mitigate conflicts of interest?
• How long would it take and how much would it cost for funds and distributors to implement or add a clean share regime?
• Whether a delay in the Jan. 1, 2018, applicability dates of the provision of the Best Interest Contract Exemption, Principal Transactions Exemption and amendments to Prohibited Transaction 84-24 reduce the burden on advisors, and if so whether such a delay would carry any risk?
• Does the rule and the prohibited transactions exemptions properly balance the risk to consumers of receiving investment advice while protecting them from conflicts of interest?
• Do the incremental costs of additional exemption conditions exceed the benefits and if so, at what cost?
• What happens to compliance incentives if regulators eliminate contractual requirements of the BIC Exemption and the Principal Transactions Exemption?
• Are there any marketplace innovations that may mitigate or remove potential conflicts of interest for advisors?
• How would advisors be compensated for selling fee-based annuities? Would compensation come directly and only from the customer? Would advisors also benefit from insurer overrides? Would fee-based annuities different from commission-based annuities?
• Could the DOL base a streamlined exemption on a model set of policies and procedures suggested by advisory firms?
• Would a more streamlined exemption process encourage advisory firms to offer more input regarding the design of a model set of policies?
• If the DOL provided insurance marketing organizations with a “financial institution” class exemption, would this facilitate advice regarding all types of annuities? Would it be better to expand the definition of a financial institution or would it be better to expand the types of annuities covered under 84-24?

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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