The process to approve a new Fiduciary Rule by the Department of Labor is proving to be more of a marathon than a sprint. On August 9, 2017, the Department of Labor requested to delay review and applicability of the long-awaited fiduciary rule until July 1, 2019. Here we unpack what led to this, what it means for you, and what direction we can most likely expect things to go next.How It All Started
A fiduciary in the financial world is an individual who is required to act in the best interest of their clients. This means advisors working in a fiduciary capacity must give accurate advice, divulge all conflicts of interest, clearly disclose all fees and compensation, and their investment recommendations must only serve the clients' goals and objectives, not the advisor's. This designation is especially important when it comes to retirement savings since it is likely the most important financial investment most individuals will ever make. The fiduciary rule is meant to protect investors and ensure that retirement advisors and other related professionals are helping them make decisions that will serve their best interests overall.
While the rule faced some serious debate, it passed in April 2016 and was set to start being phased in by financial professionals starting April 10, 2017 and end Jan 1, 2018. However, on February 3, 2017, President Trump ordered the DOL to review the fiduciary rule again. Forbes outlines an important takeaway from Trump's memo on the subject here:
Trump directs the DOL to prepare an updated economic and legal analysis of the rule, considering whether it has harmed or is likely to harm investors due to a reduction in savings offerings, whether it has resulted in disruptions within the retirement services industry that may adversely affect investors or retirees, and whether it is likely to cause an increase in litigation and prices for retirement services. If the answer is yes to any of these points, or if the DOL finds the rule is inconsistent with President Trump’s stated priority “to empower Americans to make their own financial decisions” then he directs the DOL to publish a proposed rule rescinding or revising the fiduciary rule.
This action led to a 60-day delay to the fiduciary rule's original April 10 applicability date and opened the rule up once again for commentary. It was then stated that the rule would partially go into effect on June 9, with full implementation following on January 1, 2018, but the DOL wouldn't enforce the rule in this transition period anyway.
Fast forward to August 10, and the rule is potentially delayed until July 1, 2019.
What's Happening Now
While there are those that support the rule and those that decry it, it's important to understand what these delays mean for retirement investors and employees.
How did this new delay happen? A brief was filed in a Minnesota court concerning a lawsuit regarding the fiduciary rule brought by Thrivent Financial for Lutherans. In it, the DOL indicated they had submitted a proposal to delay the full implementation of the rule to the Office of Management and Budget.
The delay is not a done deal until OMB reviews the proposal and approves it, but the delay is consistent with the timeline requested by many parties within the financial industry when it came to phasing in this rule. The delay gives the DOL more time to conduct a review before the other parts of the rule are enforced, which include the Best Interest Contract (BIC) exemption rule. It also opens up the opportunity for the SEC to weigh in.
What is the argument for or against another delay? Those who are for it claim that extending the transition period will make for less confusion in the long run and that financial firms need more time to adjust to the rule's provisions. Those against the delay feel that it is not reasonable and maybe an attempt to do away with this rule altogether, which may hurt retirement savers.
As was previously stated, this proposed delay is still awaiting approval from OMB. At AFS 401(k), we have been committed to acting in a fiduciary duty since our inception and fully support this rule. With that, even if the formal fiduciary rule never becomes approved and enforced, the financial services industry will still see the positive effects of its objective. As advisors deeply ingrained in the retirement plan landscape, we already see that providers are moving towards the fiduciary standard, whether it is their legal duty or not. Overall, we believe that the fiduciary rule is a good thing for working Americans and employers sponsoring retirement plans.
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