The Department of Labor Fiduciary Rule: Frustration, But Also Opportunity
For better or worse, the slow-motion implementation (or not) of the Department of Labor (DOL) Fiduciary Rule continues to drag out, the latest development being a further delay to full implementation of the rule till mid-2019. The delay creates both frustration and opportunity.
Much of the frustration arises from the neither-here-nor-there state of the rule between now and the eventual date on which final implementation will be required. Make no mistake, the bulk of the Rule’s requirements are in place already, even if the DOL has expressed a policy of non-enforcement until full implementation. The new definition of fiduciary casts a wider net, and fiduciaries must either restructure their compensation models to eliminate conflicts of interest, or claim one of several exemptions that allow them to, for instance, pay agents on commission.
Claiming an exemption brings with it certain regulatory requirements, even before the full implementation date. Since the DOL non-enforcement policy is conditioned on the firm making diligent, good faith efforts to implement the requirements, fiduciaries cannot sit back and see how things play out. But the details and very existence of the rule are being challenged by a range of parties and in a number of jurisdictions, and hence the frustration of working to meet requirements that may change or even fall away in the reasonably near future.
It’s true that some elements of the Rule will change or be eliminated, but one thing that is unlikely to change is the requirement to comply with the Rule’s Impartial Conduct Standards (ICS). In its release earlier this year explaining the two-stage approach to implementation, the DOL specifically stated that the ICS are required from the outset regardless of the Exemption being claimed. The ICS form the very core of the Rule; even if the Rule were torn up and thrown away, it’s likely that whatever replaces it would have the ICS as bare minimum requirement.
And there lies an opportunity for the industry. A robust effort by the industry to implement the core of the Rule – the ICS – provides a strong argument for the industry groups in their efforts to repeal or at least tame the rule. Since the main point of the Rule is to ensure that customers are being treated fairly, it would benefit the industry to point out that the firms are already implementing the ICS, by providing training (such as the e-learning module developed by Eukleia in partnership with the National Association for Fixed Annuities) and drafting appropriate policies and procedures. This in turn would strengthen arguments for the repeal of other elements of the Rule that are more pernicious but less central to the stated aim of the Rule.
Time has shown that the best way to achieve the right outcome with regulators is to work with them, not against them. By showing a shared concern for the fair treatment of customers and a demonstrated effort on the part of the industry to implement the core parts of a rule, the discussion is far more likely to achieve a goal that is good for the industry, the regulators – and the customers.
Scott Mccluskey is a veteran compliance and regulatory professional with over twenty-five years of experience in the US and Europe. He is currently a Senior Vice President for Eukleia, a Governance, Risk and Compliance training consultancy (www.eukleia.com). He began in the industry as a retail financial adviser, and his previous roles have included global Chief Compliance Officer of a major US financial institution, Director of Public Regulatory Policy for a European stock exchange, and advisor to companies and government organizations around the world.
Scott is a published author, with two books and an editorial column which currently appears on Reuters and which was recognized with a national award for its commentary on regulatory reform. He has testified to Congress and the Financial Crisis Inquiry Commission and was named one of the 100 Most Influential in Business Ethics by the Ethisphere Institute.
Scott holds a Master’s Degree from the University of Cambridge and a Bachelor’s degree from the College of William and Mary.