Regulation and Compliance Federal Regulation DOL

DOL Fiduciary Rule Heading to OMB as Obama Gives Final State of the Union

Commentary January 12, 2016 at 11:42 PM
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President Barack Obama is not expected during his last State of the Union address to run through a to-do list of upcoming priorities. Rather, he will instead recount the achievements he's made during his eight-year presidency. One of those achievements he likely will tout will be strengthening protections for retirement savers via the Department of Labor's rule to redefine the definition of fiduciary under ERISA.

Industry officials say DOL's final rule is headed this month to the Office of Management and Budget for review. Typical OMB review periods last 90 days, but an expedited review could lob the rule onto the advice industry playing field before April.

A DOL spokesperson would only say that the rule "has not yet been sent" to OMB. 

Five years after the DOL pulled its initial fiduciary rule proposal, Obama endorsed last February DOL's retooled plan and told DOL to push ahead with the rule during an unprecedented public event at AARP. At that event, Obama said that the rules put in place under the 40-year-old Employee Retirement Income Security Act "do not ensure that financial advisors act in the best interest of their clients when they give retirement investment advice."

Labor Secretary Thomas Perez embraced Obama's endorsement of the revamped rule proposal and released it last April.

As Obama and Perez expected, the redraft faced fierce opposition last year from lawmakers as well as the broker-dealer and annuities industries.

But DOL's plan survived, and industry trade groups, as well as compliance and legal professionals are now bracing for its release. The only potential obstacle that remains is "retirement principles" legislation sponsored by Reps. Peter Roskam, R-Ill., and Richard Neal, D-Mass., that would be an alternative to DOL's rule to change the definition of fiduciary on retirement accounts.

In mid-December, Roskam introduced the Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act while Rep. Phil Roe, R-Tenn., threw his support behind the Affordable Retirement Advice Protection (ARAP) Act.

Barbara Roper, director of investor protection for the Consumer Federation of America and a staunch advocate of DOL's fiduciary rule, says the lawmakers plan to move their bills through the House Education and Workforce Committee and then through the House "sooner rather than later." However, "I don't see them being enacted, since the president would never sign them, and I'm not aware of any must-pass legislation [that the bills could be attached to] on the immediate horizon."

Meanwhile, Americans for Annuity Protection says that law firms are "actively being interviewed" to help in lawsuits to challenge DOL's rule on the basis that DOL "acted beyond its authority and/or had no economic basis for proposing the rule."

AAP says it is now working to build www.saveIRAs.com as a "consumer grassroots website where annuity owners can go to tell their saving success stories and express their fears for annuity access and loss of annuity professionals if the DOL rule is not fixed."

Washington Analysis predicts that the controversial best interest contract exemption (BIC, or BICE) will survive "largely as proposed," with changes only being made as to "when" the contract between the client and broker must be signed.

The BIC proposal's "robust new disclosure requirements" will likely be made more flexible in the final rule, Washington Analysis opines, with at a minimum the disclosure requirements being "phased in over time" to ease the compliance burden.

The rule as proposed required descriptions of material conflicts of interest, a clear table that presents all fees and who receives them, and information on whether the financial institution offers any proprietary products or receives any third-party payments related to underlying investments.

The chance that a fiduciary rule by the SEC would usurp DOL's rule is also slim to none.

The securities regulator's plan to release — or pass — its own fiduciary rulemaking this year will be hampered by the agency taking on two new commissioners, Hester Peirce and Lisa Fairfax. Confirmation hearings for the two are said to be scheduled this month by Senate Banking Committee Chairman Richard Shelby, R-Ark.

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