Two days ago, documents were filed by the Department of Labor to delay the implementation of phase two of the controversial fiduciary rule. The next phase, which deals with regulations on the sale of annuities sold with retirement funds, was scheduled to take effect on January 1, 2018, but if approved, will be pushed back until July 1, 2019. Phase two included the Best Interest Contract Exemption, which, according to a recent article from InsuranceNewsNet, requires a financial institution to accept liability for each contract and gives clients the right to sue over investment advice. The Office of Management and Budget will review the submission before making the delay official.
Phase one of the DOL rule was implemented on June 9, 2016, requiring advisors and agents to act as fiduciaries. They are also required to make no misleading statements and accept only “reasonable” compensation; regulations most deem as more than fair. Phase two is where opponents are far more concerned, as it would mean BICE would be required to sell fixed indexed and variable annuities. The delay not only pushes that requirement back, but also two other exemptions, PTE 84-24 and PTE 2016-02. The latter exemption applies to advice to employee benefit plans and individual retirement accounts.
Bradford Campbell, who previously led the DOL department responsible for the fiduciary rule during the Bush administration, recently discussed potential changes during the delay. According to him, the BICE will likely be weakened. As it stands, the BICE requires significant disclosures and a signed contract with the client. It’s this contract that forms the basis of litigation liability. Removing this class-action lawsuit is a good possibility, according to Campbell. He believes that if the class-action right isn’t removed, it will cause further problems in the courts. It’s predicted that the DOL and the Securities and Exchange Commission will end up working together to create a fiduciary standard that the industry can live with, Campbell added.
Written by Rachel Summit