The Department of Labor officially sent its proposal for an 18-month delay of the fiduciary rule's remaining components to the White House's Office of Management and Budget. While expected, the request is another step toward undoing the controversial regulation.
Should the OMB approve the proposal, key components of the rule ― including the controversial best interest contract exemption ― will not go into effect in January as scheduled.
The Labor Department had first raised the possibility of postponing implementation in August, says Michael Renetzky, a partner at law firm Locke Lord.
"That said, the odyssey that has been the DoL fiduciary rule proposal, adoption and implementation has a tendency to cause one not to feel confident where anything will land until it is officially final. So, it is somewhat of a relief to see the filing of the final rule today," Renetzky says in an email.
Although parts of the fiduciary rule went into effect in June and industry lawsuits attempting to block it foundered in court, momentum to amend and possibly rescind the regulation has been building this year.
In February, President Trump signed a memo ordering the Labor Department to review the regulation with an eye to its impact on the industry. The SEC, meanwhile, has been exploring whether to craft its own best interest standard, which industry lobbying groups like SIFMA have been championing. Republican members of Congress have also recently floated bills to nix the regulation.
The rule's critics charge that it limits client choice and drives up prices, while the regulation's defenders contend it's a necessary investor protection that requires advisors and brokers to act in their client's best interest.
It's not clear how long it will take the OMB to review the Labor Department's proposal, which was filed yesterday, according to the OMB's website.
Industry trade groups were quick to welcome news of the administrative process moving forward.
"We appreciate the administration’s focus on this rule and are encouraged this critical delay is moving forward," David Bellaire, general counsel at FSI, said in a statement.
SIFMA said it was a moment for the SEC to take the reins from the Labor Department.
"SIFMA’s member firms have long advocated for the creation of a best interest standard which protects the client and client’s choice. The SEC should also now take the lead on a broad, principles-based standard of conduct that does not limit the product offerings in the market," Lisa Bleier, associate general counsel at the industry trade group.
SIFMA, FSI, the U.S. Chamber of Commerce and other business associations have unsuccessfully sued the Labor Department over the fiduciary rule.
The process of unwinding the regulation, which was unveiled by the Obama administration in 2015, has been slow-going. And fiduciary advocates are unlikely to relent in their defense of the rule. State regulators such as that of Nevada have made nascent efforts to craft their own fiduciary standards.
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