The fiduciary rule 'delay' showcases DC bureaucracy at its finest
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President Trump, in his Feb. 3 presidential memorandum ordered the Department of Labor (DOL) to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice, and … [i]f you make an affirmative determination as to any [adverse effects] … then you shall publish for notice and comment a proposed rule rescinding or revising the Rule.”

Recall that the fiduciary rule is the regulation from DOL that will hold financial advisors to a heightened standard of compliance or force them to enter into a Best Interest Contract (BIC) with their clients. The rule has been hotly debated for the better part of 7 years, largely due to the fact that it will result in retirement savers paying higher fees, having fewer options for their retirement savings, or losing out on access to a managed retirement account altogether.

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Accordingly, earlier this month DOL finalized a rule that would delay the implementation of the long-awaited fiduciary rule by 60 days while it undertakes a further evaluation of the potential effects of the rule. At first, opponents of the rule were pleased that DOL would be delaying the rule for further study. But then, the bureaucratic empire struck back.

 

Holdover Obama administration employees at DOL snuck language into the 60-day delay rule that effectively says, “We don’t care what the president ordered. You can have your 60-day delay, but the rule will go into effect immediately on day 61 no matter what.” Specifically, the rule states that “stakeholders can plan on and prepare for compliance with the fiduciary rule … beginning June 9, 2017,” even though DOL acknowledges in the very same rule that it will take longer than 60 days to the examination in accordance with the presidential memorandum.

It’s bureaucratic tomfoolery at its finest, and it should not be tolerated. Implementing the fiduciary rule on June 9 is in direct conflict with presidential directives.

The memorandum orders the rule to be rescinded or revised if DOL finds any of the following to be true: “(i) Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings or offerings, retirement product structures, retirement savings information, or related financial advice; (ii) Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in disruptions within the retirement services industry that may adversely affect investors or retirees; and (iii) Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”

Research from the American Action Forum (AAF) has found all three to be true. For instance, AAF found that if retirement account minimum balances are increased just to $5,000 as a result of the rule, over 10 million Americans will lose access to managed retirement accounts. Further, if the rule is implemented as is, it will be the most expensive non-environmental regulatory action since 2005 and will increase consumer costs by over $46 billion annually. And as to the president’s third concern, firms covered by the fiduciary rule will see annual litigation costs up to $150 million as a result of class-action lawsuits stemming from the rule’s best interest contract exemption.

With not just one adverse effect from the presidential memorandum found to be true, but all three, DOL must further delay the implementation of the fiduciary rule until it is able to appropriately study its costs and effects. Then it must either revise the rule so it works for retirement savers or rescind it altogether — or run afoul of violating the president’s mandate. DOL bureaucrats may think they have duped everyone by forcing implementation in this 60-day delay, but they did not. And if this best interest standard is truly to be in the best interest of retirement savers, it must be delayed and reworked.

 

Douglas Holtz-Eakin is president of the American Action Forum. He served as director of the Congressional Budget Office during the George W. Bush administration.

Meghan Milloy is director of financial services policy at the American Action Forum. She was a presidential management fellow at the Small Business Administration and the House Small Business Committee.


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