Near to the end of President Barack Obama's presidency, the commander-in-chief called on Congress to pass a regulation that required financial advisors to pass a more rigorous test, ensuring that their clients' best interests come first and foremost. However, with a new administration now occupying the halls of 1600 Pennsylvania Avenue, the rule's implementation is being tabled – at least for the time being.
"The definition of 'fiduciary' would be expanded if rules go into effect."
It's called the Fiduciary Rule and it pertains to the Employee Retirement Income Security Act, passed by Congress and signed into law by then President Gerald Ford in September 1974. At its core, ERISA protects consumers' retirement assets, laying out specific rules that financial advisors must adhere to so that clients' funds aren't used inappropriately. With the revised Fiduciary Rule in place, the definition of "fiduciary" would be expanded, including not only financial advisors, but other professionals who deal with retirement planning, such as brokers, financial salespeople, as well as insurance agents, among others.
With the current administration preferring an environment where regulations are eased, the Fiduciary Rule – which was due to go into effect in April – is on hold, according to multiple sources.
This comes as good news to a number of trade organizations, including the National Association of Insurance and Financial Advisors.
Paul Dougherty, NAIFA president, noted that the temporary suspension of the conflict of interest rule benefits financial professionals as well as their clients.
"It makes perfect sense for the administration to delay implementation of the Department of Labor Fiduciary Rule," Dougherty explained. "Compliance deadlines imposed by the rule are quickly approaching, so it would make little sense to keep advisors, financial institutions and their clients in limbo while the administration undertakes its thorough review of the rule."
He added that ever since the Fiduciary Rule was proposed, NAIFA had several concerns about it, requiring advisors to jump through more regulatory hoops that could ultimately be detrimental to their clients' interests. With the suspension in place, the Department of Labor will have more time to determine whether the rule is a win-win.
ACLI says delay is smart move
Also supporting the regulation's postponement is the American Council of Life Insurers. ACLI President and CEO Dick Kempthorne noted that agents are well aware of the fact that they need to act in their clients' best interests, so adding additional rules may actually wind up hurting clients more than anyone by limiting their options.
"Life insurers act in the best interest of consumers and are proud of the retirement security and dignity that they help Americans achieve," Kempthorne explained. "For this reason, the American Council of Life Insurers (ACLI) welcomes the news of the proposed 60-day delay in the applicability date of the fiduciary regulation."
Kempthorne stated further that the ACLI is ready and willing to work with the president and members of Congress to further the interests of the retirement public, both current and future.
Meanwhile, several lawmakers think the delaying of the Fiduciary Rule will ultimately be a net-negative for the American public. Ohio Senator Sherrod Brown, in a statement, said the action "will make it harder for American savers to keep more of what they earn," according to The New York Times. Brown serves as the ranking Democrat on the Senate Banking Committee.
"Some believe consumer benefits regardless of the fiduciary rule's destiny."
Consumer wins in the end?
Then again, the American College of Financial Services believes the consumer is the ultimate winner – no matter how the Fiduciary Rule shakes out. Jamie Hopkins, an associate professor at ACFS, penned an opinion piece late last year for The Hill. He declared that the mere proposal of the rule has caused financial firms to re-evaluate their services and what they need to do to be in compliance.
"This means … that many consumers will likely get better advice and services next year," Hopkins wrote in December. "However, if there is a repeal of the rule within the next year, that could also prove beneficial for consumers because the increased liability and compliance costs created by the Labor Department rule would also go away."
It bears repeating that the Fiduciary Rule hasn't been repealed; it's been shelved until the DOL renders an opinion on whether it should stay or go.
As always, GFD Financial Services remains committed to its clients and the rule of law. We'll keep you posted on the latest developments regarding the Fiduciary Rule and if the regulation will be nixed entirely or amended.