DOL proposes delay to second part of fiduciary rule
Under a proposal set for publication in Thursday’s Federal Register, the second part of the rule would take effect July 1, 2019, instead of Jan. 1, 2018. The second part of the rule includes additional requirements under the so-called best interest contract exemption, which outlines the conditions under which financial advisers may receive commissions.
The fiduciary rule, which was proposed in 2015 and finalized in April 2016, is sometimes called the “conflict of interest rule.” It requires that broker dealers consider only their client’s best interest, irrespective of commissions or fees when providing retirement advice.
In June, the Labor Department allowed part of the rule to take effect, including provisions under the best interest contract exemption that require advisers to provide advice that is in the best interest of their clients, to charge reasonable compensation and to avoid misleading statements. Among the provisions that wouldn’t take effect now until July 2019 is a requirement that financial advisors provide their clients with a written contract detailing their obligations as a fiduciary.
The securities industry opposed the fiduciary rule, and earlier this year, the White House issued a memorandum that directed the Labor Department to review it.
In today’s proposal, the Labor Department said that the “primary purpose” of the delay was to give DOL “the time necessary to consider possible changes and alternatives to these exemptions.”
“The Department is particularly concerned,” DOL said, “that without a delay in the applicability dates, regulated parties may incur an undue expense to comply with conditions or requirements that it ultimately determines to revise or repeal.”
Business groups praised the Labor Department for delaying the second effective date. In a written statement, Dale Brown, president and CEO of the Financial Services Institute, said that “President Trump ordered a full review of the rule and its impacts, and it is critical that the DOL completes that review.”
But advocacy groups blasted the delay. In a written statement, Heidi Shierholz, senior economist and director of policy at the left-leaning Economic Policy Institute, said that “the only people who benefit from the delay of this rule are unscrupulous financial advisers and financial services companies, who will be allowed to steer customers towards investments that pay a lower rate of return for the saver, but offer a higher commission to the adviser.”
The public will have 15 days to comment.