In an opinion piece published in the Wall Street Journal on May 23, Labor Secretary Alexander Acosta announced that, out of respect for the “rule of law,” the controversial “Fiduciary Rule” will go into effect this Friday, June 9, as scheduled despite calls for a further delay.

Secretary Acosta stated that although the Labor Department has concluded it is necessary to seek additional public input on the entire Fiduciary Rule, it has “found no principled legal basis to change the June 9 date while we seek public input.” “Respect for the rule of law,” he said, “leads us to the conclusion that this date cannot be postponed.”

As if challenging the SEC to weigh in, Mr. Acosta added: “Under the Obama administration, the Securities and Exchange Commission declined to move forward in rule-making. Yet the SEC has critical expertise in this area. I hope in this administration the SEC will be a full participant.”

The rule, adopted last year, is designed to protect retirement investors by radically altering the responsibilities of brokers and insurance agents who service those accounts. Critics of the rule contend, however, that the rule will increase costs and exposure for the financial services industry and, ultimately, will reduce options for retirement investors.

At least one prominent commentator suggests that the rule is a clear example of administrative overreach. The Labor Department arguably lacks authority to regulate IRAs, so by adopting an extremely broad definition of “fiduciary,” the Labor Department subjects all brokers, insurance agents and financial advisors who deal with retirement clients, including IRAs, to the restrictions placed on fiduciaries.

The Labor Department, unlike other agencies, historically has very strictly construed its rules, taking the position that a rule applies absent subsequently enacted exemptions. The Department’s arguable overreach, its inability or refusal to delay the rule, and its historical refusal to clarify rules absent lengthy exemption requests may indeed create an environment in which brokers and other financial institutions conclude that it is too costly and/or risky to take on IRA and small retirement account clients.

For example, although the Rule was intended to apply to brokers and insurance agents, industry commentators are concerned that the Rule most likely increases and extends the fiduciary obligations to which most investment advisers already are subject.

Under the new regulations, for example, marketing a private fund to benefit plans (including IRAs) could amount to “investment advice” and thereby cause the manager to become an “ERISA fiduciary” of the benefit plan with respect to the prospective private fund investment (whether or not the plan even invests in the private fund). If the manager were considered such an ERISA fiduciary, the receipt of incentive compensation and other fees from the benefit plan investors could result in “prohibited transactions” under ERISA and give rise to significant excise taxes and penalties. The new regulations apply to investments in private funds regardless of whether the assets of the funds constitute “plan assets” under ERISA.   As the critics of the rule predict, many private fund advisers, just like brokers, insurance agents and other financial industry servicers, may simply opt not to deal with IRAs.

Whether the current administration prevails upon the Labor Department to rescind the rule, or, more likely, encourages the SEC to adopt a more comprehensive standard which, presumably, would render the DOL’s fiduciary rule superfluous, this will get sorted out . . . eventually.

Until then, however, financial service providers, including private fund advisers, should promptly consult with counsel about the impact of the new Rule. Short of ceasing to do business with IRAs and other employee benefit clients, there may be possible ways to mitigate the risk of accepting such clients. We, of course, are here to help.