The controversial US “Fiduciary Rule”, which would require brokers and others advising on retirement products in the US to act in their clients’ best interest, will begin to take effect on 9 June with no further delays, US Labor Secretary Alexander Acosta said on Monday.
Acosta said the rule would go into partial effect on 9 June but full implementation would not take place until 1 January next year.
However, he stressed that the law is being implemented out of “respect for the rule of law [leading] us to the conclusion that this date cannot be postponed”, and said “additional public input on the entire Fiduciary Rule” was “necessary” and would be sought.
As reported, the rule was due to take effect on 9 April, but was delayed in March, a month after the still-new-to-office US president, Donald Trump, called on the Department of Labor to study the rule, to assess whether its implementation would limit investors’ access to investment products or advice, cause disruptions in the industry, and/or increase litigation against companies providing such advice and products.
Opponents of the rule had until 17 March to submit their comments.
‘Respect for the rule of law’
Acosta outlined his thinking on the matter in a column posted Monday evening on the website of the Wall Street Journal newspaper, to which a link is helpfully supplied on the Department of Labor’s website.
Writes Acosta in his piece, in part: “Although courts have upheld this rule as consistent with Congress’s delegated authority, the Fiduciary Rule as written may not align with President Trump’s de-regulatory goals. This administration presumes that Americans can be trusted to decide for themselves what is best for them.
“The rule’s critics say it would limit choice of investment advice, limit freedom of contract, and enforce these limits through new legal remedies that would likely be a boon to trial attorneys at the expense of investors. Certainly, it is important to ensure that savers and retirees receive prudent investment advice, but doing so in a way that limits choice and benefits lawyers is not what this administration envisions.
“The Labor Department has concluded that it is necessary to seek additional public input on the entire Fiduciary Rule, and we will do so.
We recognise that the rule goes into partial effect on June 9, with full implementation on Jan. 1, 2018. Some have called for a complete delay of the rule.
“We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input.
“Respect for the rule of law leads us to the conclusion that this date cannot be postponed.
“Trust in Americans’ ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule. Under the Obama administration, the Securities and Exchange Commission declined to move forward in rule-making. Yet the SEC has critical expertise in this area. I hope in this administration the SEC will be a full participant.”
The fiduciary rule has been heavily criticised by many major financial services industry companies and their representative organisations, as well as the Republican party, for what they say will mean a significant rise in the cost of doing business.
However, the debate over the matter has alerted consumers to the fact that those selling them retirement products might not, in fact, have their best interests in mind, something many have said they assumed to have been the case all along. (Currently, US insurance brokers must meet a lesser “suitability standard”.)
US advisers already held to fiduciary standard
Unlike brokers handling retirement products in the US, regulated financial advisers in that market have in fact been held to a “fiduciary standard” since the early 1940s. As the debate over extending this standard to the realm of retirement products began to go public, many of them have spoken out, saying that they could see no reason why being obliged to put their clients’ interests ahead of their own when selling them financial products should not be mandatory for those selling insurance products and retirement plans.
To read Acosta’s column on the Wall Street Journal website (which has a paywall) in full, click here.