Fiduciary Rule: June 9 Deadline Will Not Be Extended

May 23, 2017

Secretary of Labor Alexander Acosta confirmed that the DOL’s fiduciary rule will become applicable June 9, 2017, with full implementation on January 1, 2018. According to Secretary Acosta, there is no legal basis to further delay the rule.  “We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input,” Secretary Acosta wrote in a Wall Street Journal op-ed (which appeared in the May 23, 2017, print edition). “Respect for the rule of law leads us to the conclusion that this date cannot be postponed.” At the same time, Secretary Acosta reiterated the Department’s commitment to a full and on-going review of the rule and its likely impact on retirement savers, and appealed to the SEC to help lead efforts to establish a workable legal standard for financial professionals who serve this critical constituency.   

ADISA has advocated for additional delay of the rule to ensure that the Department and the industries impacted by the rule have an appropriate period of time to review it in accordance with President Trump’s executive order. We believe that the fiduciary rule, as currently written, may well harm the very people it is intended to protect – particularly those retirement savers of modest means who may find themselves unable to afford professional investment advice. In our view, the rule was not founded on adequate research into the effects of so-called “conflicted advice,” and we continue to believe that the rulemaking process and retirement savers generally would benefit greatly from a new and close review of the purported economic harm caused by such advice and the likely harm that the new rule will visit upon such savers who might lose access to financial advice under the new rule.   

Earlier this year, the Department issued a field assistance bulletin that described the Department’s temporary enforcement policy related to the fiduciary rule, whereby the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.  

In addition, we note that the Department issued additional “FAQs” this morning, which in part reiterate its earlier decision to scale back some aspects of the “best interests contract” exemption through the end of 2017. As confirmed in the FAQs, the standard for financial advisors who are fiduciaries under the amended and soon-to-be-effective rule cannot accept otherwise prohibited compensation in connection with an investment recommendation unless: (i) the advice they give is in the best interest of the retirement investor, which requires that the advisor exercise appropriate care in making his/her recommendation and that the recommendation be in the best interest of the client and not the advisor or his/her firm; (ii) the advisor charges no more than reasonable compensation; and (iii) the advisor makes no misleading statements about the recommendation, his or her compensation and/or any conflicts of interest.  

“ADISA acknowledges the statements made by Labor Department Secretary Acosta,” said ADISA President John Grady, DLA Piper. “While our members are disappointed that the Department has not yet completed its review of the Department’s fiduciary rule and accompanying exemptions as directed by the Trump administration, we all recognize the need for the Department (as well as all government departments and agencies) to comply fully with the Administrative Procedure Act in considering changes to any current rule or regulation.”  

“The rule, as written, could diminish the availability of professional, personalized advice investors depend on for retirement and savings needs,” said ADISA’s Legislative & Regulatory Committee Vice Chair Larry Sullivan, Passco Companies. “ADISA will work with our members to ensure that all involved understand their responsibilities under the revised rule and accompanying exemptions, and will continue to work with the Department, Congress and the SEC to ensure that all applicable rules and regulations create a level playing field for financial professionals and serve the best interests of retirement savers.”  

While ADISA is disappointed with the Department’s conclusion that it lacks an adequate basis at this time to delay the rule’s implementation date beyond June 9, we are committed to continuing involvement in all aspects of current legal and regulatory efforts to address the ability of retirement savers to access quality and affordable investment advice. ADISA plans upcoming educational sessions and activities on the unfolding implementation of the DOL’s Fiduciary Rule in its upcoming events this summer and in the fall.