Regulatory Environment Remains in Flux Under New Administration

Many business leaders anticipated a rollback of business regulations after President Donald Trump took office in January. While progress on that front has been mixed, it’s become clear that the new administration has slowed or halted a number of regulatory initiatives undertaken under President Barack Obama.

Not all, of course. With many key posts in the Department of Labor still unfilled, the new administration did not block major parts of a new and controversial DOL rule that expands the definition of fiduciary “investment advice” under the Employee Retirement Income Security Act. Parts of the rule and certain exemptions to it, including the best interest contract (BIC) exemption, took effect on June 9. However, full implementation of the rule isn’t scheduled until January 2018, and certain exemptions have been delayed and may be further delayed or revised, Michael Richman, partner with the law firm of Morgan Lewis & Bockius LLP, said during a panel presentation at the 2017 SVIA Fall Forum. Richman was joined at the dais by Lindsay Jackson and Daniel Kleinman, also partners at Morgan Lewis & Bockius.

Jackson and Kleinman said the June 7 effective date for the new fiduciary rule has already had a big impact on the financial services industry, leading in some instances to the wholesale rewriting of brokerage platforms. “A lot of our clients are looking at how they can rationalize, and in many cases level, compensation across these platforms,” Jackson said. “And the product manufacturers are looking at how to accommodate those kinds of changes.”

The new rule also has made it more important than ever for anyone in the financial services industry to know when they’re acting as a fiduciary. A particular concern revolves around determining when a conversation veers from a sales pitch to the provision of investment advice. When dealing with large plans, marketers of stable value products may be able to rely on the independent fiduciary exception to the rule to stay within the law, the panelists noted. When speaking to small plans, marketers may want to avoid making a recommendation altogether or rely on several exceptions to the rule, including, for insurance and annuity contracts, the BIC exemption.

Jackson said that pursuant to direction from the White House, the DOL is looking for ways to streamline the rule to make it more lenient or flexible while still preserving consumer protections. It is possible, she added, that the January 1, 2018, applicability date of additional conditions for the BIC exemption and two others will be extended to July 1, 2019.

In other regulatory developments, Richman said, proposed revisions to the Form 5500 annual report that plans sponsors are required to file with the Department of Labor remain pending, and there hasn’t been much chatter around the initiative. Meanwhile, the DOL’s Employee Benefit Security Administration has withdrawn a rule that would have required plans to provide a guide to the disclosures they make about plan fees.

On the legislative front, Richman noted that, in May, Congress repealed a rule designed to make it easier for states to create their own retirement savings plans for private-sector workers by exempting those plans from ERISA. Nonetheless, he said, a number of states and cities are pushing ahead with creating the plans, with the state of Oregon furthest along in its efforts. Several states also have introduced or enacted legislation aimed at filling in gaps in fiduciary obligations under the DOL fiduciary rule, he said.