DOL Fiduciary Rule Update
March 9, 2017
By: Steven E. Saltzman
It has now been about a week since the DOL published its most recent proposal to delay the coming applicability date of the new Fiduciary Rule and its related exemptions. It strikes me that many of us are probably growing weary of reading the continued swarm of articles and opinions on this subject. While helpful, the flurry of coverage can sometimes blend one’s perception of what is fact versus what is opinion- leaving many with a blurred understanding of where we currently stand.
For the benefit of those who don’t live and breathe all things Fiduciary and for those that are growing weary of reading more dry recitation on how rules are made, I thought it might be helpful to humanize this topic a bit. Instead of reviewing the process of rule-making, let’s imagine a story about love and marriage…
In April of 2015, you made a written marriage proposal to your future spouse. Your proposal included dates, location, flowers, music and other details associated with the ceremony.
After reading your proposal, your prospective fiancée- being the very rational and deliberate creature that she is- solicits input and opinions from her friends and family to effectively evaluate your proposal. After obtaining an exhaustive amount of input, your prospective fiancée makes some changes to the proposed flowers and music, as well as an unexpected demand that your mother is to be seated next to her cousin who has a penchant for conspiracy theories.
One year later in June, you and your new fiancée finally agree to the revised marriage proposal. The plan for the wedding is now complete and the ceremony date is set for April 10, 2017. Preparations for the event begin in earnest.
In November of 2016, your bride-to-be’s mother suddenly (and to the surprise of many) divorces and re-marries a rather spirited man. Shortly thereafter, the new stepfather begins to question the negotiated details of your pending nuptials and even suggests that he is not sure his new step-daughter should marry you at all.
In early February, your fiancée’s new step-father finally acts on his concerns and writes to your fiancée about his concerns. In his letter, he requests her to quickly perform an analysis to determine if the upcoming wedding details need to be changed or scrapped altogether.
After reviewing her new step-father’s request, your fiancée determines that due to the amount of work, planning, reservations, and deposits incurred toward your April wedding date, the complications are just too significant to easily reevaluate the wedding plans. In addition, most of your wedding guests have already purchased airline tickets and have made hotel reservations in preparation for the event.
Your fiancée returns the request to her stepfather instructing him that his request is “economically significant” and a “major” change, thus she is unable to complete his request without doing a significant amount of additional work that will require more time to complete- so much so that it might not be done before the April wedding date itself!
After hearing the news from his new stepdaughter, the stepfather then pushes forward a formal proposal to delay the wedding date from April 10th out to June 9th. The proposed delay is intended to allow for the additional time needed by your fiancée fulfill her stepfather’s request.
As a part of his proposal, the stepfather asks for comments from friends and family on his suggestion to delay the event and requests that they provide it on or before St. Patrick’s Day. After he has a chance to consider the input from family and friends, he will decide if a delay of the wedding date is warranted.
It is expected that he will be able to let everyone know if there is a delay about week before the current wedding date.
Like sands through the hourglass, this is essentially where we are in the days of our fiduciary lives.
Will the stepfather get his way and delay the wedding? Will the wedding go on as originally planned? Is there an evil twin we have yet to learn about? You will just have to stay tuned to find out…
The Proposal to Delay
Getting back to reality, let’s start with what exactly happened with respect to delaying the Rule recently. On March 2nd the DOL published a proposed rule in the Federal Register that would, if made effective, delay the current April 10, 2017 applicability date of the Fiduciary Rule and its related exemptions (collectively the “Rule”) by 60 days to June 9, 2017.
It is very important to point out that the DOL’s proposal to delay the Rule (the “Proposal”) is exactly that- a proposal. The Proposal itself is NOT a delay, but rather is a REQUEST to delay the applicability date of the Rule by 60 days.
While a delay of the April applicability date will impact the new Fiduciary Rule and its related exemptions, it would only apply to the first phase of requirements related to the new Best Interest Contract and Principal Transaction Exemption. The Proposal to delay does not affect the January 1, 2018 date for full compliance for those two new exemptions.
As detailed in the Proposal, the DOL will accept public comments specifically regarding the proposed 60-day delay of the applicability date during a 15-day comment period concluding on March 17, 2017. During this unusually short period, the DOL is asking for input related to:
In addition to the requested comments specific to the 60-day delay, the Proposal also requested comments related to general on questions of law and policy concerning the final Rule as well as the questions posed to the Department of Labor by President Trump in his February 3rd Presidential Memorandum. In the memorandum, the President directed the DOL to examine the ability of Americans to gain access to retirement information and financial advice under the Rule, and to prepare an updated economic and legal analysis concerning the likely impact of the final Rule. The Proposal’s deadline for comments on these specific topics is April 17, 2017, a month later than the deadline specific to the 60-day delay.
With about a month left to go before April 10th the following must occur before the delay can be effective:
Normally, the process for making this type of rule requires a waiting period of 60 days after a final rule is published in the Federal Register before it becomes effective. However, given the urgency of declaring the delay prior to the current rules becoming applicable, it is expected that the DOL will make the delay effective immediately on publication in the Federal Register. The rule-making process provides for this type of flexibility, assuming the department can show “good cause” for the rule to take immediate effect. In this case, it is likely that the “good cause” justification would be based on the disruptive effect of having an effective date of the delay fall after the applicability date of the regulation it is designed to delay.
In an article published on its website, Fred Reish, Bruce L. Ashton and Elise Norcini of the law firm Drinker Biddle expect the finalized rule to delay will be sent by the DOL to the OMB for approval on or about March 24th, a week after the comment period closes. From there, it is expected that the final rule to delay will published in the Federal Register.
This estimate indicates that we will not know if the proposed delay will be official until the first week of April, leaving only five or fewer business days before firms are required to begin complying with the Rule.
While still not a certainty, most experts expect that the 60-day delay of the Rule’s applicability date will become effective before April 10th.
Assuming the delay of the April 10th applicability date is extended by 60 days, it will allow the DOL additional time to perform the review it was instructed to undertake in President Trump’s Memorandum issued on February 3rd.
In addition, the DOL will be able to receive and review the public comments it has requested in the Proposal (due by April 17th) related to questions of law and policy concerning the final Rule as well as the questions posed to the Department of Labor in the Presidential Memorandum.
Unless there is another request by the DOL for additional delay beyond the current one (some believe that may happen), the DOL should be better positioned to make its judgement to either allow the rule to go forward as written, begin the to modify the rule and exemptions, or begin the regulatory process to revoke the rule and exemptions entirely before June 9, 2017.
Let’s all hope there is no evil twin lurking in the background.
What does this mean for us today?
The most important factors related to our current situation are as follows:
Thank you for your attention on this post. We know it is longer than usual, but felt that the information and context was needed.
We will do our best to continue to provide meaningful updates when relevant.
Contact Steve Saltzman with questions or comments at firstname.lastname@example.org.