DOL Fiduciary Delay Would Be ‘Double-Edged Sword,’ Lawyer Says

Delaying the compliance deadline for the more onerous PTEs will also allow time for a new assistant secretary of Labor's Employee Benefits Security Administration to be nominated; it is said this will happen during Congress' August recess, according to Erin Sweeney, counsel with Miller & Chevalier in Washington.

Before a plan is approved by OMB, which Sweeney sees as likely in November, "proponents and opponents" of the rule "are going to want to set up OMB meetings to explain why they believe the delay is appropriate" or not.

While details of Labor's proposal won't be visible until OMB approval, Sweeney told ThinkAdvisor that she believes "the basis for this delay is going to be that the industry is just not ready for the fiduciary rule … that everybody needs more time" to comply, specifically regarding the new clean shares and T shares and to see if "there's any way to restructure the sales of annuities that may be compliant with fiduciary rules."

The new clean, or Z share, as well as T share classes have cropped up to help brokerage firms comply with the rule, but the regulatory approval process, Sweeney said, is "taking longer than everyone anticipated"; while there's been some regulatory progress, the shares are not "readily available."

The "ideal platform [under the fiduciary rule] would be clean shares, [which have] no distribution fee at all," Sweeney said.

Duane Thompson, senior policy analyst at Fi360, a fiduciary training and technology company, said that while Labor's "proposed 18-month delay goes against the clear trend in the marketplace toward fiduciary accountability, it is not a surprise."

The delay, he said, "will likely sow confusion among investors over who is legally required to act in their best interest, and prolong inconsistent standards of service and accountability within the industry. However, increased investor awareness and market momentum are driving more firms to embrace fiduciary status regardless of the rule."

Lisa Bleier, managing director and associate general counsel for the Securities Industry and Financial Markets Association, said on a Thursday media call that SIFMA is "pleased" with Labor's request for an extension and looks forward to commenting. "There will be a lot of new information for the Department to consider," she said.

Bleier noted that SIFMA told Labor in its recent comment as part of department's request for information "it's not just exemptions that need to change" but also parts of the rule itself.

Also discussed on the call was a recently released Deloitte & Touche LLP study, commissioned by SIFMA, which surveyed a cross-section of SIFMA members to analyze how financial institutions have responded to the fiduciary rule.

The study revealed that:

• Fifty-three percent of study participants reported limiting or eliminating access to advice in retirement brokerage accounts, affecting an estimated 10.2 million accounts and $900 billion in AUM.
• Ninety-five percent of study participants indicated that they had reduced access to or choices within the products offered to retirement savers as a result of efforts to comply with the rule. Products affected include mutual funds, annuities, structured products, fixed income, private offerings and more, affecting approximately 28.1 million accounts.
• Survey participants' indicated that they spent approximately $595 million preparing for the initial June 9, 2017, deadline and expect to spend over $200 million more before the end of 2017. 

— Related on ThinkAdvisor:

• Dalbar Puts a Sellers' Exemption to Fiduciary Rule on DOL's Desk
• Critics of DOL Fiduciary Rule Push for Long Delays
• Show Me the Money: Taking the Fiduciary Debate to the Bottom Line