The big news this week was an Op-Ed published by Labor Secretary Acosta in the Wall Street Journal that declared, in no uncertain terms, that there will not be any further delay in the Department of Labor’s fiduciary rule beyond June 9th. Despite all the industry protests, that have continued for more than a year, and various attempts at (further) delays, financial advisors who provide investment advice to retirement investors will be required to adhere to the “Impartial Conduct Standards” after June 9th, requiring that they give Best Interests advice, for Reasonable Compensation, and make No Misleading Statements… as any fiduciary should. However, the permanence of the rule on June 9th still doesn’t mean the fighting over DoL fiduciary is done yet!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the coming fiduciary obligation for advisors serving retirement investors after June 9th, why the implementation of the DoL fiduciary rule was not delayed again, and why the DoL fiduciary rule still isn’t a done deal yet, despite (and in fact, because of) what Secretary Acosta announced this week.
As regular followers of this blog know, the fact that the DoL fiduciary rule will not be delayed further shouldn’t be news. As has been discussed here repeatedly in the past, and now fully confirmed by Secretary Acosta, the requirements of the Administrative Procedures Act simply left “no principled legal basis” to further change or delay the June 9th applicability date. However, it’s crucial to recognize that the full DoL fiduciary rule is still not going into effect come June 9th, because part of the prior delay also delayed enforcement for most of the rule until January 1st of 2018. As a result, there is no actual Best Interests Contract… annuity agents will not have to honor the Best Interests Contract Exemption between now and the end of the year (and can rely on the less stringent PTE 84-24 when selling annuities into an IRA instead)… new disclosure requirements won’t apply… and firms can still sell proprietary products while brokers receive conflicted compensation!
What does apply, though, is the requirement to adhere to the Impartial Conducts Standards, which is the core of what it takes to be a fiduciary under the rule: providing best interests advice, for reasonable compensation, and make no misleading statements. However, there will be no requirement to actually sign a Best Interests Contract, which means there won’t necessarily be a full fiduciary contract in place, and in turn means it’s not really clear how enforceable the fiduciary rules will really be through the end of the year. Especially since the Department of Labor itself said, in a follow-up 11-page 15-question FAQ, that it will be focused on “compliance assistance” in the coming months (and not necessarily focusing on citing violations and doling out penalties).
But the real reason it matters that full DoL fiduciary enforcement won’t be coming until the end of the year, is that it provides another 6 months for fiduciary opponents to lobby for modifying the rule. In other words, DoL fiduciary may not be getting repealed and the June 9th date is final, but that doesn’t mean this is the final rule. President Trump’s Executive Memorandum back in February, which directed the DoL to re-evaluate the rule and consider amending it, is still in effect, and a proposal may be coming. In fact, Secretary Acosta’s Op-Ed emphasized that while the rule is final, the Department of Labor is still considering revisions to the fiduciary rule, but that “the process requires patience”, and that there may even be another enforcement delay (further into 2018) while the DoL considers new exemptions or other potential revisions as it issues a new Request for Information and new Public Comment periods.
In the end, this means that while a new fiduciary rule may soon be the law of the land for all retirement accounts, what, exactly, will be required to comply with that fiduciary rule in the long run, is still wide open and uncertain. The Impartial Conduct Standards requiring best interests advice, for reasonable compensation, with no misleading statements, will take effect soon. But the true obligations of Financial Institutions to monitor and oversee that activity, and the nature of enforcement and accountability for the fiduciary duty, is still not yet fixed and permenant… so get ready for a whole lot more DoL fiduciary debate over the next 6 months!