The United States Department of Labor (the "DOL") published a request for comment in the Federal Register on July 6 with respect to its often discussed fiduciary rule (the "Fiduciary Rule"). This time, the DOL hopes to clarify uncertainty moving forward, as the Fiduciary Rule and its related prohibited transaction exemptions (the "PTEs") became partially effective on June 9, 2017, and will be fully implemented on January 1, 2018. However, recent events have brought the wisdom of a January 1, 2018 applicability date into question.
The DOL is currently reviewing the Fiduciary Rule and its related PTEs as the result of an Executive Order from the President that was issued in February, directing the DOL to "prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice." The DOL must revise or rescind the current version of the Fiduciary Rule if it finds that the Fiduciary Rule: (1) harms retirement investors; (2) disrupts the financial services industry in a manner harmful to retirement investors; or (3) increases litigation and the costs of the retirement system borne by retirement investors.
Additionally, the Securities and Exchange Commission (the "SEC") issued a request for public comment in June with respect to the application of the securities laws to investment advisers and broker-dealers serving retail investors. Thus, it is possible that DOL revision to the Fiduciary Rule and supplementary SEC rulemaking will affect the regulatory standards imposed on parties providing investment advice before the January 1, 2018 applicability date occurs. Consequently, this request for comment by the DOL seeks to begin the process of reforming the Fiduciary Rule before affected parties begin the process of undertaking compliance efforts for the January 1, 2018 applicability date with respect to the current version of the Fiduciary Rule. The DOL request for comment asks 18 questions, some of which are highlighted below:
- The DOL asks if a delay in the January 1, 2018 applicability date of the Fiduciary Rule and its related PTEs reduces the burden on financial services providers and benefits retirement investors by allowing for more efficient implementation of the Fiduciary Rule and its PTEs that is responsive to recent market developments;
- The DOL asks if the Fiduciary Rule and its related PTEs appropriately satisfy the interests of consumers in receiving broad-based investment advice, while protecting them from conflicts of interest;
- The DOL wishes to receive public comment on streamlining its Fiduciary Rule in the event that any new standards of conduct for investment advice are promulgated by the SEC;
- The DOL wishes to receive public comment on the effect on compliance incentives for advisers if the DOL eliminates or substantially alters the best interest contract requirement;
- The DOL would like public comment and ideas for a potential streamlined Fiduciary Rule and PTEs based on new market innovations, such as mutual fund clean shares;
- The DOL would like to know if the PTEs, in their current state, could be revised or expanded to: (1) better serve investor interests; and (2) provide better market flexibility;
- The DOL would like public comment on the most important issues to address in: (1) making changes to the Fiduciary Rule; and (2) providing additional relief through amended PTEs.
Commenters must submit comments on the extension of the January 1, 2018 applicability date by July 21, 2017. Commenters may make a comment on any of the other questions posed by the DOL until August 7, 2017.