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DOL and SEC Will Release New Fiduciary Standards This Fall

by Precise Leads

March 5, 2018

The DOL and SEC will release their combined fiduciary rule blueprint before two key provisions are scheduled to take effect.

After months of intense debate, the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) are expected to reveal their versions of the fiduciary rule sometime in the fall, according to ThinkAdvisor.com. Several attorneys who specialize in the Employee Retirement Income Security Act of 1974 (ERISA) law told the website that the projection is based on the postponement of several provisions within the fiduciary rule until July 2019.

Brad Campbell, former head of the DOL’s Employee Benefits Security Administration and now counsel with Drinker Biddle & Reath, told ThinkAdvisor.com that both the DOL and SEC would need to coordinate their fiduciary rule proposals in the fall so as “to provide enough time for the comment period…[and] come up with a final rule…by roughly July.”

Key Provisions Delayed

This past summer, DOL delayed implementation of two controversial components of the fiduciary rule until July 2019: the Best Interest Contract Exemption (BICE) and changes to the Prohibited Transaction Exemption (PTE) 84-24 Rule. The BICE rule demands more transparency from advisors, mandating that they always serve their clients’ best interests, declare any conflicts of interests, and clearly spell out their compensation structure.

Under the current PTE 84-24 provision, insurance agents and brokers, pension and insurance consultants, and investment company principal underwriters can receive commissions when selling certain financial products, such as variable annuities and fixed indexed annuities (FIAs). If BICE is enacted, sales of fixed indexed annuities would fall under that rule — a switch FIA sellers and distributors say is more burdensome.

Another reason for the fall deadline may be the confirmation of a key DOL official overseeing the fiduciary rule revisions and their implementation. In late December, Congress confirmed Preston Rutledge as Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) a move that will likely quicken DOL’s fiduciary rule actions. “Without political leadership, really nothing could proceed in terms of revising the fiduciary regulation and the prohibited transaction exemptions,” Fred Reish, a partner at Drinker Biddle & Reath, told ThinkAdvisor.com.

States Propose Own Fiduciary Standards

While the DOL continued to review the fiduciary rule, several states, among them Connecticut, Nevada, New Jersey, and New York, either enacted or proposed laws similar to the BICE provision that require heightened disclosures from advisors and stipulate that any investment advice be given solely with the client’s best interests in mind. New York State’s proposed fiduciary standard, for example, mirrors BICE in specifying that all annuity and life insurance sales must be done to further the client’s financial goals, not to enrich the advisor.

Those state laws, however, may conflict with the federal fiduciary standard. As a result, Campbell stressed that the DOL and SEC need to address which regulations — state or federal — take precedence. “There’s a question about how much states could do in securities regulation that might be preempted by federal law,” he said.

In an interview with Bloomberg Law, Reish said that the states would likely shelve their own fiduciary proposals if the DOL-SEC hands down a strong standard. If it doesn’t, he expected that some states will enact measures to protect their retirees, who “are going from fiduciary protections and institutional pricing to no fiduciary protections and retail pricing.”

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