Will the Fiduciary Rule’s Transition Be Extended?
Think the transition period for the fiduciary regulation will be extended? Fred Reish has some thoughts…
In his most recent blog post
on the fiduciary regulation (#52, if you’re counting), Reish reminds that the new fiduciary regulation went into effect on June 9, meaning that virtually all advisers to plans, participants and IRAs are now fiduciaries, or will be as soon as they make the next investment recommendation to one of those qualified accounts.
Additionally, he reminds that certain exemptions from the fiduciary regulation during the transition period between June 9 and Dec. 31 will only apply until Dec. 31, when the full exemptions will apply — unless…
He notes that there will be certain key events between now and then: The Department of Labor will be publishing a Request for Information asking, among other things, about the potential impact of the fiduciary rule and changes that may be needed; the SEC has asked a series of questions about a possible fiduciary standard for all investment advice within its purview; and both agencies have indicated that they will be working together to develop their respective fiduciary definitions — and perhaps even a unified definition?
Additionally, he explains that the DOL has asked for input concerning the structure and requirements of the prohibited transaction exemptions, including the two exemptions that impact most advisers… the Best Interest Contract Exemption (BICE) and Prohibited Transaction Exemption 84-24.
Reish says he thinks it will be “virtually impossible” for the DOL and SEC to collaborate on the development of a common, or at least compatible, definition of fiduciary advice and standard of care before Dec. 31. He notes that in order to comply with the terms of the Administrative Procedures Act, the final regulation would need to be published in early November, which means a proposed regulation would probably need to be published in early to mid-September — something Reish says “seems almost impossible” — partially because of the need for coordination and partially because the SEC hasn’t previously proposed guidance on these issues. In other words, he notes that even though the DOL has a basis for revising its regulation and exemptions, the SEC doesn’t.
“As a result, my view is that the DOL will extend the transition period, perhaps for as much as a year,” Reish writes, a result that he says represents both good news and bad news for financial services companies. Good in that it allows more time to fully adapt to the new rules and because the compliance requirements for the transition exemptions are not that difficult or burdensome. Bad — at least for those firms that strenuously object to the fiduciary rule, because, he writes, a year from now, financial services companies will be in compliance with the fiduciary standard and fiduciary advice will have become the standard course of business. “The fiduciary standard will have become the norm,” he notes, and as a result “it may be more difficult to change the fiduciary definition and standard of care,” though he says there will still be significant changes to the exemptions and, particularly, to the Best Interest Contract Exemption.
“One way or another, I expect that we will hear, in August or September, that the transition period is being extended,” he concludes.