The decision to once again delay full implementation of the so-called fiduciary rule comes with a sigh of relief to some financial planners not quite ready for the Jan. 1 deadline.
But the 18-month delay, approved by the Department of Labor last month, prolongs regulatory uncertainty surrounding the retirement-investment community that could be stalling the industry’s ability to move past the issue.
The manifestation is detailed between the lines of a recent BNY Mellon’s Pershing group survey released the day after the DOL Nov. 27 decision.
“Regulatory uncertainty may be overshadowing some of the longer-term challenges facing the industry,” according to the report.
BNY Mellon’s Pershing approves of the delay, releasing a statement: “We believe a further delay of the rule allows time for engagement in a meaningful dialogue with the Department of Labor.”
But its study, titled “Business Transformation: Navigating A Path Forward,” suggests more than two-thirds – 67 percent – of respondents said the fiduciary rule is a main challenge to business.
The rule is designed – in basic terms – to require financial planners to act in the best interest of their clients. It applies to retirement accounts, such as 401(k)s, individual retirement accounts and Roth IRAs, and was initially proposed in 2016 after nearly a decade of planning.
The rule started rolling out earlier this year, but the transitional period was meant to end on Jan. 1 before the DOL came out with its decision to further delay.
The DOL said the decision stems from a need to consider additional public comment it received after President Donald Trump directed it to prepare an updated analysis on the likely impact of the fiduciary rule on access to retirement information and financial advice.
“The extension gives the department the time necessary to consider public comments submitted pursuant to the department’s July request for information, and the criteria set forth in the presidential memorandum,” according to the DOL. “The department intends to complete its review under the presidential memorandum and decide whether to propose further changes.”
The extra time comes as welcomed news to some financial advisers, including Ryan Alan Lax, owner of Lax & Co. Based in Warwick, the financial planning and life insurance firm serves midsize- and small-business owners throughout the state.
Lax, who says transparency is paramount to the trade, lauded the delay for allowing the industry more time to make the necessary changes needed to become compliant with the new rules.
“This will allow [advisers] to get all their ducks in a row,” he said.
Those who opposed the delay, however, argue it will only continue to cost the consumer, which the rule is designed to protect from bad actors in the financial-planning community.
Heidi Shierholz, policy director at the Economic Policy Institute, a Washington, D.C.-based think tank, estimates the 18-month delay could cost retirement savers $10.9 billion during that period.
“Delaying this commonsense rule will cost working people who are saving for retirement billions of dollars – dollars that will end up in the pockets of unscrupulous financial advisers,” Shierholz said in a statement.
A majority – 64 percent – of respondents to the BNY Mellon’s Pershing study said their firms have already implemented the necessary process and documentation changes related to the new rule. The capital investments – plus time spent getting ready for the rule – weren’t cheap, meaning reverting to any prior system would negate those efforts and costs incurred.
The survey also showed nearly half – 43 percent – of respondents said they would like to see the fiduciary standard kept alive – even if the rule is revamped.
Count Edythe M. De Marco among those in favor of the rule. Managing director of wealth management at Merrill Lynch Wealth Management in Providence, De Marco says the industry should be moving this way anyway.
“Merrill Lynch supported this rule from the start, as it fits with our core strategy of providing investment advice that is in our clients’ best interests and helps them meet their financial goals,” she said. “The [extension] … has no impact on Merrill Lynch because we don’t use these exemptions. Moreover, the passing of the fiduciary rule has had no impact on my practice.”
For BNY Mellon’s Pershing, the survey reaffirms what the firm was already seeing anecdotally in the marketplace. But Rob Cirrotti, managing director of investment and retirement solutions at BNY Mellon’s Pershing, hopes the industry will move forward and start focusing on new issues facing the trade.
“Firms have spent a fair amount of time adapting to the changes in the regulatory environment,” Cirrotti said in a statement. “Now, it is time to move beyond the regulatory uncertainty. We must engage in a wider conversation about how technology and talent can create the scale and efficiencies needed to transform the business for the future.”
