On February 27, 2017, the Office of Management and Budget (OMB) found the controversial Department of Labor (DoL) fiduciary rule to be “economically significant” in their review, a finding that puts the rule delay in doubt.1 This “economically significant” finding is a win for pro-rule consumer groups, such as AARP (American Association of Retired Persons) and Consumer Federation of America, and will require a “much more robust economic analysis” said Erin Sweeney, a lawyer with Miller & Chevalier in Washington D.C..2 It means a longer comment period, and potentially more analysis work for the DoL. The rule is scheduled to take effect on April 10, 2017, and any comment period longer than 15 days means the DoL will not be able to push back that “applicability date.” With the OMB review complete, the delay request is now back in the DoL’s court.

Background

On February 3, 2017, President Trump issued an Executive Order giving power to the Secretary of Labor to rescind or revise the fiduciary rule, writing that the fiduciary rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration.”3 Trump’s order directed the Secretary of Labor to prepare an “updated economic and legal analysis” of three specific areas:4

  • Whether the rule has harmed, or is likely to harm investors due to a reduction in access to certain types of retirement offerings, or related financial advice
  • Whether the rule has disrupted the retirement advice industry so is adversely affecting investors
  • Whether the rule is likely to cause an increase in litigation, and so to the prices that investors will pay to gain access

If any of those points are met, the Secretary of Labor must rescind or revise the rule.5 The Executive Order states “If you make an affirmative determination as to any of the considerations identified in subsection (a) (above) – – or if you conclude for any other reason after appropriate review that the Fiduciary Duty Rule is inconsistent with the priorities identified earlier in this memorandum (above) – –  then you shall publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.”6

After the release of the Administration’s Executive Order, the acting Labor Secretary filed in mid-February, a plan with the OMB via a Notice of Proposed Rulemaking, to delay the April 10, 2017 Applicability date, proposing a 15-day comment period on the plan to delay the rule for 180 days.7

What This Means

On February 24, 2017, the OMB concluded its review of the delay proposal, but did not approve it, sending it back to the DoL deeming the delay “economically significant” so mandating them to provide an analysis of the economic impact of the delay.8 On March 1, 2017, the DoL proposed to delay the Applicability date from April until June (60 days), with a proposed 15 day comment period on the delay, and a 45 day comment period to comment and analyze the OMB designation, and the Trump executive order.9 “Given the review requested by the (Trump) administration, and the DoL’s call for comments on the rule, this 60-day delay should be implemented with post-haste. The delay will allow the new administration an opportunity to review the rule’s impact on investors and the market, while providing firms additional time to prepare for potential changes to the rule,”10 stated SIFMA’s (Securities Industry and Financial Markets Association) Ken Bentsen, who has long been in opposition to the rule. In contrast, in February 2017, several groups met with the White House, urging officials not to stop the legislation. Over ten meetings a dozen organizations pushed to have the regulation take effect, including the AFL-CIO (American Federation of Labor and Congress of Industrial Organizations), AARP and the Consumer Federation of America. “The courts have repeatedly held that any delay in the rule would cause far more harm on the public than it would to the industry that’s complaining about the rule,”11 stated Stephan Hall, the legal director for Better Market, and the rule has so far survived four different court challenges, including from SIFMA, and proponents of the fiduciary standard say they will continue to fight to protect it. In addition, some financial firms have announced that they would begin complying with the fiduciary rule, regardless of what the Trump administration does.12

Next Steps

Comments are flooding into the DoL regarding its proposed rule to extend for 60 days the Applicability date of its Fiduciary Rule under the Employee Retirement Income Security Act. The March 1, 2017 proposal allows for a 15-day comment period on the DoL’s plan to move the rule’s first compliance date from April 10, 2017, to June 9, 2017.13

On March 10, 2017, the DoL issued a “Field Advisory Bulletin” stating that it would not enforce the rule in the near term. It determined that relief is appropriate to protect against investor confusion and related marketplace disruption due to uncertainty related to the delay decision.  The policy will cover any gap period in which the rule may become applicable before a delay is implemented. If the DoL’s decision is not to delay the rule, this policy will provide a reasonable period of time for compliance after such a decision.14

The DoL sent a final rule to the OMB on April 3, 2017, to delay the applicability date of the rule. The OMB will review, and if the delay is approved, will send it back to the DoL to publish in the Federal Register.15

On April 4, 2017, a 60-day delay of the DoL’s Fiduciary Rule was issued by the Employee Benefits Security Administration (EBSA), and will be published in the Federal Register by Friday, April 7, 2017. The DoL will now conduct a review of the rule, and whether it may hinder access to retirement investment advice. In addition to the 60-day delay, the department also said that other regulatory requirements in the rule for firms to provide disclosures and written representations of compliance to investors will not be mandated until January 1, 2018.16

References

  1. “OMB Pushback Endangers DOL Fiduciary Rule Delay,” InsuranceNewsNet, February 28, 2017. Access at: https://insurancenewsnet.com/innarticle/omb-tough-dol-fiduciary-rule.
  2. Ibid
  3. “Here’s a copy of the executive order Trump signed on Americans’ retirement money,’” Business Insider, February 3, 2017. Access at: http://www.businessinsider.com/trump-executive-order-official-copy-on-fiduciary-rule-retirement-2017-2.
  4. Ibid
  5. Ibid
  6. Ibid
  7. DOL Moves to Delay Fiduciary Rule,” ThinkAdvisor, February 27, 2017. Access at: http://www.thinkadvisor.com/2017/02/27/dol-moves-to-delay-fiduciary-rule?slreturn=1491848901.
  8. Delay of DOL fiduciary rule faces new challenges,” InvestmentNews, February 28, 2017. Access at: http://www.investmentnews.com/article/20170228/FREE/170229922/delay-of-dol-fiduciary-rule-faces-new-challenges.
  9. “Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice; Best Interest Contract Exemption (Prohibited Transaction Exemption 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Prohibited Transaction Exemption 2016-02); Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, 84-24 and 86-128,” Employee Benefits Security Administration, Labor, Federal Register, March 2, 2017. Access at: https://www.federalregister.gov/documents/2017/03/02/2017-04096/definition-of-the-term-fiduciary-conflict-of-interest-rule-retirement-investment-advice-best.
  10. “SIFMA Statement on DOL’s Proposed 60-Day Delay and Review of the Fiduciary Rule,” SIFMA, March 1, 2017. Access at: http://www.sifma.org/newsroom/2017/sifma_statement_on_dol_s_proposed_60-day_delay_and_review_of_the_fiduciary_rule/.
  11. “Trump officials seek to delay Obama rule on investment advisers,” The Hill, March 1, 2017. Access at: http://thehill.com/regulation/labor/321780-trump-administration-delays-obama-era-fiduciary-rule.
  12. Ibid
  13. “Comments Flood In on DOL Fiduciary Rule Delay,” ThinkAdvisor, March 7, 2017. Access at: http://www.thinkadvisor.com/2017/03/07/comments-flood-in-on-dol-fiduciary-rule-delay?&slreturn=1489158972.
  14. “The DOL Fiduciary Rule: A Timeline,” Forbes, March 23, 2017. Access at: https://www.forbes.com/sites/ashleaebeling/2017/03/23/the-dol-fiduciary-rule-a-timeline/#71b1b2bb29a1.
  15. “Fiduciary Rule Delay Goes to OMB,” WealthManagement, March 29, 2017. Access at: http://www.wealthmanagement.com/industry/fiduciary-rule-delay-goes-omb.
  16. “EBSA issues fiduciary rule delay,” Pensions & Investments, April 4, 2017. Access at: http://www.pionline.com/article/20170404/ONLINE/170409959?AllowView=VDl3UXlKTzlDdkNCblIzQURleUhaRUt1ajBnVUErOVlFQT09&utm_campaign=smartbrief&utm_source=linkbypass&utm_medium=affiliate. “U.S. Labor Department to delay ‘fiduciary’ rule for 60 days pending review,” Reuters, April 4, 2017. Access at: http://www.reuters.com/article/us-usa-labor-fiduciary-idUSKBN1762RE.

Newsletter Author: Samantha Regan, Mairi Bryan

Newsletter Contact Person: Nghi Pham

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