House of Representatives Enters the Fiduciary Fray

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The ongoing saga of the DOL’s fiduciary rule is now in its eighth year. The rule was first proposed in 2010 and promptly withdrawn amidst much controversy. The rule was re-proposed in 2015 and became final last year. Despite expectations that the Trump administration might scrap the Rule entirely, it has survived thus far.

The essence of the Fiduciary Rule is that any person making investment recommendations to plans, their participants or IRA holders, is acting as a fiduciary and may only make recommendations that are in the best interests of the client. Significantly, the Rule will apply where advisors recommend that participants roll their plan accounts to a retail brokerage account.

Some parts of the Rule took effect June 9th after a 60-day delay due to an executive order issued by President Trump in February. The new definition of a fiduciary and the new standard for investment advice are now in effect. The best interest contract exemption that allows for charging commissions in brokerage accounts, and certain other provisions, are scheduled to take effect January 1st of next year. The best interest contract exemption has been a major concern of the financial services industry.

Consistent with statements made by Alexander Acosta, the new Secretary of Labor, the DOL published a notice requesting comments on the Rule on June 30th. There was a 15-day comment period that ended July 21st to submit comments on postponing the January 1, 2018 implementation date. There is also a 30-day comment period that ends August 7th for comments regarding new exemptions or other revisions to the rule. These are short windows for comments. Comment periods for regulations usually run for at least 90 days.

The House of Representatives, in its infinite wisdom, has now decided to enter the fray. The House Education and Workforce Committee will soon begin debating the Affordable Retirement Advice Savers Act. The stated intent of this bill is to “protect access to affordable retirement advice by overturning the Obama Administration’s fiduciary rule, while ensuring retirement advisers serve their clients’ interests. Supporters of the rule probably see this as a paradoxical statement. If this bill becomes law, it will effectively repeal the fiduciary rule.

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