Active investment management’s weekly magazine for fee-based advisors
June 9, 2017, marked a key date in the life cycle of the implementation of the Department of Labor’s (DOL) fiduciary guidelines, but the investment community continues to ponder how the final rules will take shape and on what timeline.

According to Investment News last Friday (June 9), “Two provisions of the measure, which requires financial advisers to act in the best interests of their clients in retirement accounts, become applicable today. One expands the definition of who is a fiduciary, and the other establishes impartial conduct standards. … How much of the rest of the rule will survive is an open question.”

Figure 1 shows the original timeline for implementation of the DOL guidelines:

FIGURE 1: DOL FIDUCIARY STANDARDS ORIGINAL TIMETABLE FOR IMPLEMENTATION

The original implementation date of April 10, 2017, was delayed for two months due to the Trump administration’s decision to fully reassess the DOL’s guidelines and the implementation schedule. The DOL, according to several industry sources, has indicated that the Jan. 1, 2018, full implementation deadline may be pushed back further. ​

The Wall Street Journal noted over the weekend,

“While the review is set to continue through year’s end and the rule wouldn’t take full effect until Jan. 1, 2018, brokers must begin upholding a fiduciary standard, meaning they put the clients’ interest before their own. … While wealth managers and insurance sellers are on the hook to act as fiduciaries starting June 9, it is essentially on the honor system until January 1.”

Investment News said last week that there is now another factor acting as a wild card in the process:

“The volatility surrounding the DOL rule amped up two weeks ago when the Securities and Exchange Commission released a request for comment about fiduciary duty. With that move, the SEC jumped back into an issue it had been sidestepping since the Dodd-Frank financial reform law gave it the authority to promulgate a uniform standard for retail investment advice.”

Numerous surveys have been conducted among financial advisors, RIAs, and broker-dealers to assess their reactions to the DOL guidelines moving forward. Two of the greatest areas of concern are (1) what investment products will be most affected by the guidelines?, and (2) what preparations have been made by firms as the June 9 deadline approached? The following two figures address those areas.

FIGURE 2: WHAT PRODUCTS WILL BE AFFECTED BY THE DOL FIDUCIARY RULE?

FIGURE 3: WHAT CHANGES HAVE ADVISORS/BROKER-DEALERS MADE TO PREPARE FOR THE DOL RULE?

On May 25, 2017, Secretary of Labor Alexander Acosta published comments on the fiduciary rule and other matters as they pertain to the deregulation efforts of the Trump administration. He wrote, in part,

“Another example of a controversial regulation is the Fiduciary Rule. Although courts have upheld this rule as consistent with Congress’s delegated authority, the Fiduciary Rule as written may not align with President Trump’s deregulatory goals. This administration presumes that Americans can be trusted to decide for themselves what is best for them.

“The rule’s critics say it would limit choice of investment advice, limit freedom of contract, and enforce these limits through new legal remedies that would likely be a boon to trial attorneys at the expense of investors. Certainly, it is important to ensure that savers and retirees receive prudent investment advice, but doing so in a way that limits choice and benefits lawyers is not what this administration envisions.

“The Labor Department has concluded that it is necessary to seek additional public input on the entire Fiduciary Rule, and we will do so. We recognize that the rule goes into partial effect on June 9, with full implementation on Jan. 1, 2018. Some have called for a complete delay of the rule.

“We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input. Respect for the rule of law leads us to the conclusion that this date cannot be postponed. Trust in Americans’ ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule.”