On June 9, 2017, parts of the Department of Labor's (DOL) fiduciary rule took effect, a major milestone in what has been a long and often rocky path to implementation. However, the rule, which requires that advisors offering advice on retirement savings accounts put their clients' interests before their own, may still face some obstacles on the way to full implementation.
Rule to Proceed Despite Concerns of President Trump
Originally, the rule was set to take effect on April 10, 2017, but in February, President Trump ordered the DOL to examine whether the rule would “adversely affect the ability of Americans to gain access to retirement information and financial advice." As a result, the DOL announced a 60-day delay just days before the rule was supposed to take effect, leading many to wonder whether it would ever be implemented at all.
On May 22, Labor Department Secretary Alexander Acosta announced that the rule would take effect on June 9 as expected. However, parts of the rule will not be enforced until January 1, 2018. Additionally, the DOL will not pursue claims against fiduciaries who are attempting to comply with the rule "diligently and in good faith" until after January 1, 2018.
Republicans Still Committed to Deregulation
In a Wall Street Journal editorial, Secretary Acosta made it clear that further delay was not possible due to the requirements of the Administrative Procedure Act, and reiterated that the Trump administration is committed to deregulation. The implication being that the administration would continue looking at ways to modify or potentially eliminate the rule — though few believe that an outright repeal is likely.
The U.S. House of Representatives recently passed the Financial Choice Act, which would roll back parts of the 2010 Dodd-Frank financial regulations. The bill also included language that would repeal the DOL rule and prevent the department from addressing the issue until the Securities and Exchange Commission does. The bill is unlikely to pass the U.S. Senate, where Democrats have enough votes to block it with a filibuster.
The Trend Toward the Fiduciary Standard Won't Be Easy to Reverse
Nevertheless, financial institutions must begin to communicate the impact of the rule to their clients and ensure that they are in compliance with its regulations. This is expected to make a full repeal of the rule more difficult. Even if it were to happen, it's possible that many financial institutions would continue to abide by the spirit of the rule given the potential disruption that would come with reversing course.
At BNY Mellon Wealth Management, we have always operated under the fiduciary standard. We are not compensated on the products we sell, but on our expertise and ability to serve our clients well. Our priority is to meet the needs of our clients and offer the best investment guidance to help them reach their financial goals.
For more information on what the fiduciary standard is, how it differs from the less stringent “suitability" standard that many advisors follow and how you can determine whether your advisor is truly putting your interests first, read our recent article, “Work With a Fiduciary to Ensure You're Getting the Best Advice."