Perhaps the most surprising development came on July 3,
when, in a brief filed before the U.S. Court of Appeals for the 5th
Circuit, the DOL and Department of Justice (DOJ) announced
that the government would no longer defend the restrictions on
arbitration in the BICE and opined that the conditions should be
vacated and severed from the exemption. The move marked a stunning reversal in the DOL’s defense of the rule, which, had been
vigorous and resulted in several litigation victories. Moreover, on
August 30th, the Department released Field Assistance Bulletin
2017-03 which confirmed the position taken in the courts and
explained that the Department had instituted a non-enforcement
policy with respect to the arbitration provisions in the BICE. The
reversal of positions directly affected at least one pending lawsuit,
Thrivent Financial for Lutherans v. R. Alexander Acosta and U.S.
Department of Labor, a case before the District Court of Minnesota.
No summer is complete, however, without a blockbuster
to end the season. That came on August 9, when the DOL
announced in a notice of administrative action in the Thrivent
litigation that it would be submitting for interagency review a
proposed 18-month additional delay to the applicability dates
for the BICE, Principal Transactions Exemption, and Prohibited
Transaction Exemption (PTE) 84-24. The Department issued
the proposed delay on August 30th. While the nature and form
of this announcement does not provide certainty, an 18-month
delay—pushing back the applicability dates for most of the rule
to July 1, 2019—is considered by most to be very likely.
While the last year has taught us that nothing is certain, it
appears increasingly likely that the fiduciary rule will be drastically reshaped if it ever becomes fully applicable. There are many
moving parts that may shift the trajectory between now and
July 2019, including litigation results and the still forthcoming
results of the DOL’s re-examination of the rule.
In sum, despite all of the uncertainty, the only pronounced
undoing of the rule has come at the hands of the DOL. Ironically,
it appears that the greatest threat to the future of the rule may not
be the retirement services industry, but the DOL itself.
Therehasbeenmuchturbulenceconcerningthe Department of Labor (DOL) fiduciary rule. At this time last year, its future seemed certain and its implementation inevitable,
despite the looming threat of several lawsuits from the industry.
But today, after a string of litigation victories, the biggest threat
appears to come from Washington, as the DOL signals a significant pullback of the rule. Regrettably, the long-term outlook is
complicated. First, the rule is now in effect, even though the
industry is benefitting from a transition period. Secondly, even
if one of the courts of appeals vacates or pulls back on the rule,
what will happen when administrations change? And finally,
how substantial will the DOL’s next revisions be?
The following describes the most recent events affecting the
rule, and the rule’s outlook for the foreseeable future.
Timeline of Events
On February 3, President Donald Trump issued a directive
instructing the DOL to conduct a new economic and legal analysis
of the rule and asked the DOL to consider whether it harmed investors by, among other things, limiting access to investment advice
and other tools needed to prepare for retirement. In response, on
March 1, the DOL issued a proposed rule to delay the fiduciary
rule’s applicability date from April 10 to June 9. However, the
proposed rule did little to ease industry anxiety and arguably only
caused more headaches as the industry struggled with whether to
continue or to scale back compliance preparations.
On April 4, the DOL issued a final rule that made the new
definition of “fiduciary” fully applicable on June 9; however, it
provided a transition period from June 9 until January 1, 2018,
during which the only requirement was compliance with the
impartial conduct standards of the best interest contract exemption (BICE) and other exemptions. Again, the DOL’s actions did
little to clear up the uncertainty about the future of the rule and
only prolonged the collective anxiety.
The Plot Thickens
On June 29, the DOL issued a request for information (RFI) for
industry input and ideas for possible new exemptions or regulatory changes to the rule. Notably, the RFI requested input on
specific conditions in the exemptions, including the contract
requirement, disclosure requirements and conditions for the
independent fiduciary exception.
Stephen Saxon is a partner with Groom Law Group,
Chartered, in Washington, D.C. George Sepsakos, an
associate with Groom, contributed to this article.
The Fiduciary Rule
The long-term outlook is complicated