The Trump-Era Fiduciary Rule

Where does the DOL’s fiduciary rule stand? What might we expect in the future? ERISA attorney Fred Reish provided an update on the former and shared his thoughts on the latter in an Oct. 24 workshop at the 2017 ASPPA Annual Conference in National Harbor, MD, just outside the nation’s capital.

It’s important to remember that the rule expanding the definition of fiduciary advice became effective on June 9, Reish noted. Also on that date, transition rules for certain exemptions — the Best Interest Contract Exemption (BICE) and Prohibited Transaction Exemption (PTE) 84-24 — became applicable.

The transition BICE was created by rules proposed by the Trump administration less than five months after Inauguration Day. Citing July 1, 2018 as the likely date the transition BICE will become final, “we should see the final version of the delay in the next few weeks,” Reish said. “As a result, the transition relief is likely to be in effect for a period of two years.” He added, “I doubt that many of the delayed aspects of the rule will ever go into effect.”

SEC’s Likely Role

Among the impacts of the delay is the fact that it will enable the Securities and Exchange Commission to weigh in on the issue of a fiduciary standard. This does not mean that we should expect a uniform definition of fiduciary advice, standard of care or treatment of conflicts of interest, Reish cautioned. Rather, the SEC will address those important issues, but within their purview.

Currently the SEC lacks enough seated members to act, although President Trump has nominated individuals to fill the two vacant seats. (The Senate Banking Committee met Oct. 24 to consider both nominees, Mercatus Center fellow Hester Pierce, a Republican, and Columbia Law School professor Robert Jackson, a Democrat.) Assuming they are confirmed by the Senate, “the full Commission will not be in place until after Jan. 1,” said Reish, at which point he expects that they will turn their attention to the fiduciary issue.

When that happens, Reish expects the DOL to take the lead on ERISA issues, since ERISA sets forth important concepts like the prudent person rule, the duty of loyalty to plan participants, reasonable limits on advisor compensation (which Reish said he expects the DOL to “soften”) and prohibited transactions and PTEs. Meanwhile, the SEC will take the lead on disclosures, he said. Reish also believes that “something along the lines of the prudent person rule and duty of loyalty standard is likely from the SEC.”

The end result of this reworking of the rules? “Not as good as some people hope, but not as bad as some people fear,” said Reish.

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