Experts Predict Quick OMB Review of Final DOL Fiduciary Rule

Now that the Labor Department's final fiduciary rule has landed at the Office of Management and Budget for review, industry officials and attorneys anticipate that Labor's final rule doesn't include many changes and that there will be a quick review by OMB.

Labor filed its final rule at OMB on Friday.

While OMB reviews typically take up to 90 days, ERISA attorney Fred Reish, partner at Faegre Drinker, told ThinkAdvisor on Monday in an email that he suspects that OMB will release Labor's final rule in 45 to 60 days.

"But considering how fast the DOL finalized the rules, it could be faster, maybe in the 30- to 45-day range," Reish said.

While Reish believes that the final rules "will be substantially the same as the proposals," there's "a chance that there could be some expansion or explanation of when information and education will not be fiduciary advice."

That could include, for example, "touting services and products, information about retirement adequacy and contributions," Reish explained. "The industry is hopeful for a more limited definition of the actions that could cause loss of eligibility to use the exemptions."

The revised fiduciary rule proposal, dubbed the Retirement Security Rule: Definition of an Investment Advice Fiduciary, will likely be finalized this year, with a Jan. 1 effective date, Reish and Brad Campbell, partner at Faegre Drinker in Washington, have said.

Phyllis Borzi, a former head of Labor's Employee Benefits Security Administration, said in another Monday email to ThinkAdvisor that "DOL got this [rule] ready for OMB review a bit faster than most thought, but that shouldn't be so surprising given that it is a high Administration priority."

Added Borzi: "I expect that DOL has continued the open consultative process that we used in developing the 2016 proposal — including outreach and consultation with the staff of the SEC and Treasury/IRS — so that the review process could move smoothly with finalization of the rule possible well before the usual 90-day review period."

Thomas Roberts, principal at Groom Law Group in Washington, said in another email that Groom is not "anticipating that the DOL's final rule will reflect major changes from the proposal."

It is possible, however, "that DOL may tweak certain provisions to address some of the industry's expressions of concern over the sweeping nature of the proposal," Roberts continued. "In particular, changes that would provide clearer pathways for wholesalers and those who serve larger plans to avoid fiduciary status when engaged in sales activity would be welcome."

OMB review "typically marks the final stage of the rulemaking process," Roberts added, with the timetable for review could be "as short as a few days" or "several months."

Assuming a typical OMB review process, "we would expect the Fiduciary Rule to be released for publication sometime around the end of May," Roberts opined.

Duane Thompson, president of Potomac Strategies, stated in another email that he doesn't foresee "many changes to the final Retirement Security Rule and related amendments."

"I'm not overly surprised that it's at OMB now," Thompson relayed. "I think the Biden administration would want the final package out and approved by late May or early June in order to avoid opponents using the Congressional Review Act to overturn it in the next Congress."

Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said in a statement Monday that the fact that Labor "rushed the comment period and now is rushing a final rule makes clear the process was never designed to obtain and thoughtfully consider input from stakeholders or conduct robust cost-benefit analysis."

Such a "hasty approach," Bentsen continued, "will result in policy that does not ensure consistent investor protection and will limit investors' access to advice and education and their ability to choose how they receive that advice and education" and also indicates Labor is "not making the changes needed to rectify legal errors in the proposal, which was in clear conflict with the 2018 court decision striking down the Department's last fiduciary rule."

One-Time Recommendation

One of the most controversial changes under Labor's revised rule is that it makes a single recommendation a fiduciary recommendation.

A new survey commissioned by the Certified Financial Planner Board of Standards, released Monday, reveals that nearly 97% of Americans agree that financial professionals who provide one-time recommendations or other one-time advice about retirement investments should be required to act in their clients' best interest.

This includes a recommendation to roll over funds from a workplace retirement savings program (such as a 401(k) plan) into an individual retirement account or an annuity, the survey states.

In the CFP Board survey, which polled Americans who have worked with a financial professional, the proposed change mirrors the assumptions that Americans make about the advice they already are receiving.

"Nearly all Americans (92%) understood that the financial professional who recommended moving their funds out of a workplace retirement savings program into an IRA or annuity was required to make that recommendation in their best interest," the survey states. "Americans widely believe that a financial professional giving such advice is doing so as a fiduciary," according to the survey.

Only 5% of survey respondents did not expect the financial professional to fulfill a fiduciary role regarding advice on rolling over workplace retirement savings into an IRA or annuity, the survey found.

Labor's proposed Retirement Security Rule "helps assure clients that they can trust their advisor to help them achieve their investment and retirement goals confidently and ethically," CFP Board CEO Kevin Keller said in a statement. The new rule "would close existing regulatory gaps from antiquated regulations that were created in 1975."

A separate CFP Board survey of CFPs found that "broadening the fiduciary standard requirement across the financial planning ecosystem will not limit the flexibility of financial planning services, nor will it reduce access to these services for moderate-income investors," the group reported.

The survey, conducted by the CFP Board research team, probed CFPs on the minimum amount of investable assets that clients must have for the CFP to provide them with financial advice about those assets.

After the CFP Board expanded the scope of the fiduciary duty in its Code of Ethics and Standards of Conduct (which was effective for all purposes in 2020), 90% of CFP professionals chose to maintain their current required minimum investable assets for clients rather than raising the minimum, according to the study.

Similarly, 82% of CFPs did not raise the minimum investable assets threshold for their clients following the Securities and Exchange Commission's adoption of Regulation Best Interest.

"Now, nearly four years after Reg BI's adoption, 42% of CFP professionals surveyed do not require their clients to have a minimum amount of investable assets," the survey found.

What's more, "Reg BI had a limited impact on CFP professionals' client rosters — 86% of CFP professionals maintained their existing client roster after the regulation's enactment," CFP Board said.