April 12, 2017. By Matthew Okaty:
Last year we saw the release of a major new piece of financial industry regulation, commonly known as the DOL Fiduciary Rule, which was originally scheduled to take effect this week (April 10, 2017 specifically). If you recall from my previous blog on this subject, the rule raises investment advice standards by imposing a fiduciary duty upon any financial professional who provides investment advice for a fee with regards to retirement accounts, broker-dealers and investment advisers alike. However, similar to the fate of many other Obama-era laws, this piece of legislation has also been caught in the new administration’s cross-hairs, and its implementation has been delayed for 60 days. This is pursuant to a presidential memorandum issued by President Trump shortly after he was sworn into office.
To be exact, President Trump’s memorandum itself did not require an immediate delay in the rule. Rather, it directed the Department of Labor (DOL) to conduct an updated economic and legal analysis of the rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” The memorandum also directed the DOL to propose revisions, or even to rescind the rule, as appropriate depending on its findings. In order to be able to conduct such an analysis, the DOL requested for the rule to be delayed. Their request was ultimately granted by the Office of Management and Budget after receiving almost 200,000 public comments, most of which voiced support for the rule and opposed any kind of delay.
While the implementation date for the Fiduciary Rule has now been pushed to June 9, 2017, it will still be phased in so that full compliance with its more contentious provisions will not be required until January 1, 2018, which is when the DOL expects to have its updated analysis completed. The part of the law that will take effect, essentially, on June 9th is the principal-based Impartial Conduct Standard, which consists of three factors:
- Acting in the client’s best interest (i.e. as fiduciaries)
- Receiving reasonable compensation, and
- Making no misleading statements.
This standard is basically the backbone of the law and is widely accepted to be a positive thing. It is some of the more technical details of the rule and additional compliance provisions that are the subject of more debate, such as the various notice, disclosure, warranty and contract requirements. These provisions are not scheduled to take effect until January 1, 2018, and it is entirely possible we will see further delays or changes to the law considering the current administration’s deregulatory agenda.
As a Registered Investment Adviser, Centerpoint Advisors already adheres to a fiduciary standard, and so whatever ultimately happens with the DOL rule we will continue to always act in the best interest of our clients. The rule has a more significant impact on broker-dealers who currently operate under the less stringent suitability standard, and who will thus experience greater change to their business models. If you have any additional questions about this, please feel free to contact us.