The Department of Labor’s new fiduciary rule could be released next month, however, many in the industry are anticipating more delays. “I would be shocked if it happened in January,” says John Ludwig, an adviser at LPL Financial.

The DOL’s first proposal to broaden the definition of fiduciaries in 2010 was withdrawn after opposition from the financial industry. In May, a re-proposal slated for August was postponed until January 2015.

Currently listed on the Office of Information and Regulatory Affairs’ website, the “conflict of interest rule,” as it’s called, defines a fiduciary as “those persons who render investment advice to plans and IRAs for a fee” as defined under ERISA and the Internal Revenue Code. “The amendment would take into account current practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as changes that have occurred in the investment marketplace, and in the ways advisers are compensated that frequently subject advisers to harmful conflicts of interest.”

Also see: “Understanding fiduciary protection from retirement providers”

Once the proposal is sent to the Office of Management and Budget, a 90-day review period starts, but OMB can take longer and often does when reviewing complex issues, says Mike Hadley, a partner at Davis & Harman LLP, which serves as outside counsel for SPARK Institute. Hadley expects OMB will take its time reviewing the proposal.

Won’t happen overnight

Whatever the new standard, it likely won’t take effect for at least 12 to 18 months, Ludwig says. “It’s not something that happens overnight,” he says. Should the new rule be as broad as many are predicting, Ludwig says it would harm advisers in the individual IRA marketplace — many larger firms are already serving as fiduciaries. “A lot of people won’t want to deal with smaller accounts,” he says. “It hurts the small investor,” and that group needs the most help today, Lugwig says.

Also see: “DOL delays its proposed rule to expand fiduciary definition”

Plan participants could stand to benefit from the new rule, as it would weed out the advisers who aren’t acting in their clients’ best interest, says Brian Dean, who oversees the national retirement plan investment resource center for CBIZ Financial Solutions. “You can’t always regulate honesty and integrity,” he says. A broader definition would also help larger firms, he says, in their pursuit of continued growth.

The American Society of Pension Professionals and Actuaries is hopeful that the DOL will heed the industry’s prior concerns. “There has been some optimism that the re-proposal would reflect changes based on concerns expressed the last time,” said ASPPA’s Chief of Communications Nevin Adams. “Of course, we don’t yet know that it will or won’t, nor do we how much change it might reflect, if any.”

Hadley says he’ll be interested to see if the proposal addresses rollover claims and/or prohibited transaction exemptions — the latter is a major issue for both SPARK and advisers. “We have to wait and see,” he says. 

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