We first began writing about the DOL Fiduciary Rule two years ago. Since then, the status of adoption of the Rule has been uncertain, even could be characterized as a roller coaster ride. The push from the Obama administration was slowed down by the 2016 Presidential election. Certainly, if Hillary Clinton had been elected, the regulatory path would have been smoother for adoption, even in the face of lawsuit challenges. President Trump’s election has resulted in some more uncertainty; the delay in the appointment of Sec. Acosta may have contributed to the uncertainty.

So, now where do we stand? Strictly from the regulatory standpoint, the path seems clear: on June 9, the DOL’s regulatory change takes effect, expanding the definition of fiduciary investment advice, holding service providers and plan sponsors accountable to the regulations included in ERISA. Simply put, that fiduciary obligation means that service providers subject to the rule must act in the best interests of their clients. In the event of a conflict of interest, the service provide must meet certain exemptions or avoid offering fiduciary advice.

We are on the cusp of a fundamental change. Though some providers have already begun the internal changes in order to meet the Rule, some have resisted; some seek the safe harbor of temporary exemptions; some have joined the legislative and litigation challenges to the Rule. What can stop the implementation? Here are some possibilities:

  1. Sec. Acosta takes an action through DOL to freeze the June 9 implementation. As of this writing, there are growing concerns in Congress that Sec. Acosta will take last minute actions. On May 19, Sen. Patty Murray, joined by Sens. Warren and Booker, wrote to Sec. Acosta seeking assurance that he would take no action. On May 22, however, Sec. Acosta announced that he no reason to delay the “soft open” while the DOL seeks public input. Notwithstanding, will President Trump “overrule” Sec. Acosta through a new Executive Order?
  2. The Financial Choice Act, approved by the House Financial Services Committee, on May 4 both overhauls the Dodd-Frank Act and repeals the DOL Fiduciary Rule. Passage of the bill before or after June 9 would present obstacles or more to the implementation of the Rule.
  3. To date, legal challenges to the Rule have not been successful. It is reasonable to predict that the existing legal challenges will continue at district court and appellate levels. Conversely, it is reasonable to predict that further delay of implementation of the Rule could result in lawsuits seeking to enforce the Rule, likely through a lawsuit brought pursuant to the Administrative Procedures Act.

In the face of this uncertainty, some providers have acted as though the Rule will be implemented. “Limited purpose IRAs” is a term that has been coined to provide options to investors to comply with the Rule. Other providers have crossed fingers and are hoping for further delay or repeal of the Rule. Regardless, the costs to providers have been enormous.

Predictions here are dangerous. And, there are so many possibilities that the predictions may not be valuable. Perhaps by our next newsletter there will be more clarity. Perhaps not.