By Carol Buckmann
June 9 is now the magic date when, unless the Department of Labor or Congress acts quickly, parts of the Fiduciary Rule will come into effect. June 8 is the last day of the 60 day extension granted in response to President Trump’s executive order directing the Department of Labor to reexamine the Fiduciary Rule, and after that brokers and others who give investment advice to plans will be subject to fiduciary responsibilities and a best interest standard (though not to many requirements of the Best Interest Contract Exemption). We are all advising about what people will need to do by June 9. Being prepared is important, but I am still not sure that anything will really happen then, as numerous actions are being taken by opponents of the Rule to further extend the June 9 effective date or to repeal the Rule.
How Much Time is Needed? Some may question why any review of a rule that was more carefully studied than any in recent memory, has been upheld by every court that has looked at it, and was supported by an overwhelming majority of those who filed comments on the proposed delay is necessary, but President Trump’s executive order directs that a review be made and it hasn’t been completed yet. Opponents of the Rule continue to lobby against it, though their efforts to stay the court decisions pending the Department of Labor’s review were unsuccessful. They argue that the Department of Labor’s action making parts of the Rule effective on June 9 (which surprised many practitioners) is not consistent with the directive in the executive order to fully review the Rule. In fact, though, the prior analysis was so thorough that limited additional time should be needed for review.
What Is Happening Now? New Labor Secretary Acosta, who has expressed reservations about the Rule, had not been confirmed when the delay was finalized, and various interested groups, including supporters such as AARP, have requested meetings with him to discuss the Rule. Last week, 100 Republican lawmakers wrote a letter to Secretary Acosta urging further delay, and the Dodd-Frank overhaul bill, called the CHOICE Act, was approved by the House Financial Services Committee with an added provision repealing the Rule. The repeal provision also prohibits the Department of Labor from enacting another rule until the SEC has taken action on broker responsibilities, which no one expects to happen while the Republicans are in charge. Virtually anything can happen now.
· The Department of Labor could further extend the effective dates while it continues to examine the Rule, and then decide that it either does or does not need to be changed. It may or may not, on its own, decide to defer to SEC rulemaking.
· Congress could still overturn the Rule legislatively, though the full House and the Senate would need to approve the repeal provision. (Due to the date it was adopted, the Fiduciary Rule was not eligible to be removed under the Congressional Review Act.)
· The Department of Labor could eliminate the most controversial parts of the Rule, such as extending fiduciary protections to IRA holders and the special protections in the Best Interest Contract Exemption and let a watered down fiduciary standard come into effect.
· The Department of Labor could withdraw the Rule and propose a completely different version, such as one that relies solely on disclosure, though this seems a long shot, given its initial position not to further delay parts of the Rule.
· Lawsuits may be brought by proponents of the Rule to challenge administrative actions that further delay or change it, seeking to enforce the original provisions as upheld by several courts. Standing will be an issue.
Where Does This Leave Us? While I don’t pretend to have a crystal ball, my prediction is that some parts of the Fiduciary Rule will survive, but the watered down version will be less effective in reining in conflicted advice. However, the playing field has already changed; more and more providers will voluntarily adhere to a fiduciary standard. Retirement plan investors and sponsors will still be responsible for providing their own protections by hiring those who adhere to fiduciary standards and seeking contractual protections.