DC Industry Providers Voice Fiduciary Rule Frustration

Friday July 21st marked 15 days since the publication of a Department of Labor (DOL) request for information pertaining to its ongoing expansion and strengthening of the fiduciary standard under the Employee Retirement Income Security Act (ERISA).

Galling some industry providers, the first portion of the RFI only allowed for a 15-day comment period. The short comment period, as laid out in the text of the RFI, applied to Question 1, relating strictly to the idea of delaying the January 1, 2018, applicability date of certain provisions of the expanded fiduciary rule.

The agency’s wider RFI seeks input regarding potential new and amended administrative class exemptions from the prohibited transaction provisions of ERISA and the revenue code that were published in conjunction with the fiduciary rule expansion. Commentary on these matters is due within 30 days—on or before August 7, 2017. Among other considerations, the DOL seems to be curious how recent product development of “clean shares” and zero-revenue sharing investment approaches may impact the fiduciary landscape.

DOL officials have publically acknowledged that a “number of stakeholders … have requested a longer period in order to gather evidence and respond with new information.” The department encourages commenters to submit responses within the initial timeframes to “ensure their consideration as part of an expeditious process.” Nevertheless, the department’s examination is “ongoing, as is its consideration of possible proposals for new exemptions or revisions to the Fiduciary Rule and PTEs. Accordingly, if commenters submit thoughtful comments on questions 2-18 after August 7, 2017, the department will endeavor to consider those comments.”

Many of the public comments submitted so far regarding Question 1 clearly favor further delay in the January 1, 2018, applicability date for the more laborious requirements of the DOL rulemaking. By way of background, the fiduciary rule and PTEs had an original applicability date of this April 10, 2017.  However, a February memorandum from President Donald Trump directed the agency to analyze the rule’s likely impact on the access to retirement information and financial advice. In response, EBSA delayed the applicability date of the final rule to June 9 and asked for additional input, while also introducing transition provisions to simplify compliance efforts.

All told several thousand comments have been submitted throughout this lengthy process—and it’s clear that even more industry commentary is coming. For example, the U.S. Chamber of Commerce notes in its latest comment letter that the current transition fiduciary rule has been in effect for “only a short period,” and its full consequences—intended and unintended—are not immediately apparent.

“We are concerned that the truncated 30 day comment period for questions 2 through 18 will inhibit the ability of commenters to gather meaningful data that is responsive to the questions posed in the RFI,” the Chamber argues. “As such, we respectfully request that the DOL extend the comment period for these questions to 60 days so that commenters are afforded sufficient time to gather evidence and respond to the RFI. The requested comment period extension will allow the concerned public necessary time to observe the impacts of the rule more fully. The Chamber, and other interested observers, have already initiated data collection efforts to monitor and evaluate the implementation experience. These efforts will yield important new empirical evidence of the actual effects of the rule.”

NEXT: The argument for further delay 

The argument for delay of the requirements coming into play January 1 are summed up nicely in T. Rowe Price’s comment letter: “We believe that the fiduciary advice rule and accompanying exemptions are not ready for full implementation. More importantly, we believe that the fiduciary advice rule is not ready for full enforcement by the Department of Labor. We urge the department to consider extension of its temporary enforcement policy announced in Field Assistance Bulletin 2017-02 (May 22, 2017) at the same time it evaluates the deadline for full compliance with the exemptions accompanying the rule.” 

The letter continues: “The full applicability of the Best Interest Contract Exemption is important not only to those who intend to use it, but to all industry participants as well as advice recipients. This exemption is central to how many firms will deliver advice to retirement plans and investors and, more importantly, is the exemption with the single biggest potential impact on advice recipients because of the extensive disclosures required. Implementing the full exemption in its current form will affect the marketplace for advice and its availability, and may impact retirement investors' receptivity to advice. Accordingly, we encourage delay in full implementation.”

T. Rowe Price’s comments also highlight that the Secretary of Labor has announced an intention to work closely with the Securities and Exchange Commission in reconsidering the fiduciary advice rule.

“The SEC has now issued a statement seeking public comments on the standards of conduct for investment advisers and broker dealers when they provide investment advice to retail investors,” T. Rowe Price observes. “Coordination suggests that the Department of Labor should await the SEC's receipt and evaluation of information.”

Comments submitted by the Financial Services Institute (FSI) echo those points, arguing that if the full fiduciary rule is to be implanted at all, its member firms and the wider industry would need, at minimum, 36 months to comply.

“Although our members are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the prohibited transaction exemptions, they report that it will be extremely challenging or even impossible to achieve full compliance with the fiduciary rule by [January 1],” FSI warns. “This is due to the complexity inherent in the fiduciary rule, the sequential nature of many of the work streams necessary to develop required systems and a desire by firms to make use of recent, but not yet widely available, innovations in the financial services industry to facilitate compliance. Therefore, for the reasons explained more fully below, we suggest that the applicability date of the rule be delayed until April 10, 2019 to provide the industry the full 36 months we said at the outset was necessary to fully comply with the fiduciary rule.”

Many of the commenters will be happy to hear how, at the 2017 PLANSPONSOR National Conference (PSNC), held in June in Washington D.C., Timothy Hauser, deputy assistant secretary for program operations of EBSA, indicated the staff of the DOL still views the final form of the fiduciary rule as subject to substantial change. He assured attendees that DOL would carefully consider this latest round of industry comments.