Opinion: Delay Neuters Fiduciary Rule


The wealth management industry received a pleasant summer surprise as the Department of Labor pushed back the implementation deadline of its “Fiduciary Rule” by 18 months, if it comes to pass at all.

Under the extension, wealth managers have until July 1, 2019, before they must choose to sign new contracts with their clients who are retirees that would disclose broker fees on certain products or move those customers to accounts with flat fees that are based on the amount of the clients’ assets.

The industry first learned of the planned delay in a filing the DoL made as part of a lawsuit taking place in Minnesota on August 9. The DoL then submitted its proposed delay for review by the Office of Management and Budget on August 10, following the new regulatory reduction process implemented by the Trump Administration on February 3.

Given that the current administration is doing as much as possible to undo Obama Era regulations, a lot could, and could not, happen in the next 23 months.

The OMB likely will take every day of its 90-day review period to speak with the backers and opponents of the rule. That means the OMB will need to make its final decision no later than Wednesday, November 8. And I’m sure that the OMB will kick back to the DoL and instruct the regulator to re-write the rule so that it would be less costly to implement.

According to a Deloitte & Touche survey commissioned by the Securities Industry and Financial Markets Association, respondents already had spent approximately $595 million preparing for the rule’s original June 9, 2017, deadline and expect to spend a further $200 million by the end of the year.

If one took the same numbers and distributed them across the entire wealth management industry, SIFMA officials estimate the entire industry spend would be more than $4.7 billion, which significantly exceeds the DoL’s estimate of $2 to $3 billion.

Then there is the likely chance that too many cooks will spoil the broth.

The US Securities and Exchange Commission under Chairman Mary Jo White did not contribute its insight when the DoL wrote its initial draft. That is going to be different under Chairman Jay Clayton.

It is doubtful that the DoL ultimately would kill the rule outright due to overwhelming global trend towards increased transparency within the financial markets, but having the rule die on the vine would not be surprising.

To be polite, the DoL is bereft in leadership. Of the 11 Senate-confirmed positions in the DoL, the Senate has only confirmed Secretary of Labor Alexander Acosta. The Trump Administration has nominated Partick Pizzella for Deputy Secretary of Labor, who is waiting for confirmation, but has not named any candidates for the remaining nine open leadership positions within the DoL.

Whether this is because of the lack of orderly operations in the West Wing or a simple plan to hobble the effectiveness of the DOL, it will slow the re-writing of the Fiduciary Rule.

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