Brace For 18 More Months of Fiduciary Reg Limbo
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Thursday, August 10, 2017

Brace For 18 More Months of Fiduciary Reg Limbo

Get ready for another year and a half of fiduciary reg limbo. And that may give space for changes to the reg and its accompanying exemptions, too.

Alex Acosta
U.S. Department of Labor
Secretary of the U.S. DoL
Yesterday Alex Acosta's Department of Labor (DoL) submitted a proposal to the Office of Management and Budget (OMB) to delay the final implementation date for the "conflict of interest rule" (also known as the DoL rule) from January 1, 2018 to July 1, 2019, pushing it back 18 months. The DoL revealed the move in a filing in a federal court case in Minnesota, a case about the fiduciary reg and brought by Lutheran-focused mutual fund firm Thrivent [profile]. MFWire's sister publication, 401kWire, broke the news.

Fund Action, InvestmentNews, P&I, PlanSponsor, Reuters, and the Wall Street Journal all followed up on the news.

Fiduciary reg limbo is nothing new. The first part of the rule (notably without the best interest contract exemption, the "BICE," and without the private right of action to sue financial services players rather than go to arbitration) was delayed slightly but took effect two months ago. Yet two weeks before that Secretary of Labor Acosta publicly confirmed that the DoL's extra review of the reg was still ongoing, that he wanted more public input on the issue, and that further changes or delays down the line were still possible.

The delay to mid-2019, if it takes effešt, would give Acosta plenty of time to propose revisions to the reg. Indeed, Josh Lichtenstein, tax and benefits attorney at Ropes & Gray, states that the proposed delay would give the DoL "greater freedom to alter requirements of the Best Interest Contract Exemption or to create new, stream lined exemptions before the new July 1, 2019 effective date."

"This proposed delay could be seen, in part, as an attempt to avoid having financial institutions make further changes to their practices before the DOL makes final decisions on what the rule and the related exemptions will look like," Lichtenstein adds.

Supporters of the rule, not surprisingly, are bemoaning the proposed delay. Duane Thompson, senior policy analyst at fi360, tells InvestmentNews that "the 18 months is excessive." Chicago securities attorney Andrew Stoltmann tells the pub that the DoL's move is "a very clear attempt at death by delay." Barbara Roper, director of investor protection at the Consumer Federation of America, tells the WSJ that "the biggest impediment to investors receiving the full benefits of the rule is uncertainty over its fate, and a delay of this length only contributes to that uncertainty."

On the flipside, some opponents of the rule are cheering. Ronald Kruszewski, CEO of broker-dealer Stifel Financial Corp, tells the WSJ "that everyone was hoping for a delay." Dale Brown, president and CEO of independent B-D trade group, states that the delay "represents an important step" and calls on the DoL to work with the SECU "to simplify and streamline the rule." Lisa Bleier, managing director and associate general counsel at B-D trade group SIFMA, tells INews that the delay is "good news" and "necessary to avoid mass confusion." James Szostek, vice president of taxes and retirement security for life insurer trade group ACLI, agrees that the "delay is necessary", specifically to give the DoL enough time to keep reviewing and potentially revising the reg.

The DoL's latest move comes ten days after the DoL rule's most high-profile opponent, hedge fund entrepreneur Anthony Scaramucci, left his job as President Trump's White House Communications Director (only ten days after taking the job in the first place).

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