2017 was a wild year for both the wealth management industry and for its most famous regulation—the fiduciary rule. But what will happen in 2018? The answer is a lot, and not all in the direction some might think. While the DOL rule does feel like it might be on its last legs given the long delay and SEC involvement in developing a new rule, there are some factors which might help it, or at least advance the fiduciary rule cause. For instance, industry buy-in of the rule, especially by big firms, is increasing as they realize it is more profitable to adhere because of higher revenues from fee-based accounts. Additionally, many states are working on their own rules, another factor likely to push federal rule-makers. Finally, the SEC may come out with its own universal rule this year.
FINSUM: We expect it to be another wild ride in the fiduciary saga this year. Our best bet is that the SEC will come close to making a rule this year, but that it will not be implemented until mid 2019.
Just a day after the 18-month delay of the fiduciary rule became official, SEC Chairman Jay Clayton made an important announcement on the issue. Speaking yesterday, Clayton made clear that the SEC was going to do something about the fiduciary rule. He said “It’s a priority for me to address this space in light of the action that the Department of Labor took to step into this space”, continuing “I think we belong in this space … And we should try and produce a rule, that, when investors see it, they are happy with”.
FINSUM: These are important comments as over the last month there seemed to have been a loss of momentum at the SEC over whether it was really going to do anything regarding the rule.
Well, it took a while to happen, but the DOL delay of the fiduciary rule is now official. The rule will not be implemented until at least July 2019, 18 months later than its initially scheduled full implementation date. Importantly for advisors, the BICE will not come into force during that period, taking away the major risk of client lawsuits. While critics of the rule are rejoicing, proponents say the delay is effectively a repeal. The DOL will use the delay to consider how to either amend or get rid of the rule.
FINSUM: This has been on the horizon for some time, but it is good to see that it has actually come true. Here comes another round of legal battles to try to stop the DOL from modifying the rule. We think the SEC might back away from making a new rule, and the whole fiduciary push could dissolve.
The DOL has been inundated with legal challenges from all sides over the last year. At first it was opponents of the rule challenging the DOL’s authority, while much more recently it has been those opposed to the DOL’s delay of the implementation date. Well, the Department looks set to win one of the old challenges to its authority. Thrivent Financial has been pushing a case which tries to eliminate the rule, but the DOL is now requesting the courts to throw out or suspend the case, as the changes it already has and will put in place mean Thrivent’s criticisms are already being rectified.
FINSUM: It has been very interesting to see how much the DOL’s position has changed on the fiduciary rule since Trump’s team started to take the helm. This seems very likely to be tossed out.
While somewhat irked that it still exists at all, the industry seems to be pleasantly surprised at the recent move by the DOL to delay the full implementation date of the fiduciary rule to July 2019. The long timeline, and corresponding comfort that gave, however, may be in doubt, as a new court challenge may result in the delay getting thrown out. A consortium of consumer advocate groups will launch a legal challenge which questions the DOL’s right to delay the rule. The case will challenge whether the “delay” is really a “stay” of the rule in disguise, and it will question the DOL’s authority to do it in the first place.
FINSUM: Anything opposing the fiduciary rule has never done very well in the courts, so it is probable that this challenge could have legs.