Today, the U.S. Department of Labor (DOL) released a proposed rule delaying the applicability date of the fiduciary rule by 60 days, until June 9, 2017. The 15-day public comment period will end March 17. Also known as the “investor protection rule” or the “conflict of interest rule,” the fiduciary rule’s original applicability date was April 10. On February 3, President Trump instructed DOL to review the rule.

Background

Last year, DOL issued a final rule defining who is a “fiduciary” for the purpose of providing investment advice under the Employee Retirement Income Security Act of 1974 (ERISA). The final rule was titled “Definition of the term ‘Fiduciary’; Conflict of Interest Rule—Retirement Investment Advice.” The rule broadens the universe of activity that could give rise to a person being deemed a fiduciary under ERISA for providing investment advice or making investment recommendations for a fee or other compensation to ERISA-covered benefit plans or IRAs. The final rule replaced the rule that had been in effect since 1975, which more narrowly tailored the activity that defined an investment fiduciary and, in general, exempted one-time broker-dealer transactions from fiduciary activity.

DOL also released several amendments to six existing prohibited transaction class exemptions (PTE) and two new PTEs, including the Best Interest Contract Exemption. The rule was effective on June 7, 2016, with an applicability date of April 10, 2017.

On February 9, 2017, DOL delivered a proposed rule to the Office of Management and Budget (OMB) seeking to delay the applicability date. This proposed rule was delivered to OMB on the heels of President Trump’s February 3 presidential memorandum instructing DOL to review the final rule to determine whether the rule would, among other things:

1. Limit investment advice to the investor community

2. Cause disruption in the financial industry or

3. Lead to an increase in litigation

This memorandum further instructed DOL to modify or rescind the final rule, as appropriate, if DOL made an affirmative determination on any of the issues it was asked to consider, or if it concluded for any other reason that the rule needs to be revised or rescinded.

The preamble to today’s proposed rule notes that the 60-day extension is necessary for DOL to review the final rule per the president’s memorandum; if DOL concludes that the final rule should be rescinded or revised, then the extension will avoid exposing stakeholders to two major regulatory changes rather than one. The proposed rule invites comments on 19 questions, many with subparts, relating to the issues Trump instructed DOL to review. The public has 15 days to comment.

Implications

The proposed rule was with OMB for about three weeks and was the subject of much speculation, including whether DOL would extend the rule for 180 days. It is difficult to predict what DOL can accomplish with only 60 days, or how effectively the public can respond to 19 multi-part questions in the 15-day comment period. The final rule was six years in the making, including three days for public hearings and more than 120 days for public comment. At this point, all that seems certain is that the uncertainty injected by the president’s memorandum will continue for some time, even though three courts have upheld the validity of DOL’s process in issuing the rule.