The Department of Labor is yet again giving advisory firms more time to comply with its expansive fiduciary rule, according to an attorney with the law firm Faegre Drinker.
The DOL currently has a non-enforcement policy toward the new rule, which went into effect last February, but that arrangement was set to expire on December 20. At that point, the complex rule, known as the prohibited transaction exemption (or PTE 2020-02) would kick in. The rule governs how registered reps and advisors analyze and disclose rollover recommendations for investors in retirement plans and IRAs.
“The word on the street is that the extension of the non-enforcement policy will be for 60 to 90 days,” said Faegre Drinker’s Fred Reish, a partner at the firm, in an interview with Financial Advisor. “That would provide additional time, from December 20 to February or March. I am hearing that one of the reasons for the extension is to allow data providers more time to develop their systems to provide plan information to financial institution for purposes of evaluating rollovers.”
Retirement plan data is critical because the rule requires financial firms to analyze investors’ current plan and IRA assets, costs and performance before they can recommend rollovers that are in investors’ best interest.
More than 50% of broker-dealer and registered investment advisory firms reported in September that they are still in the earliest days of planning to comply with the rule, despite the looming deadline, according to an informal poll from InvestorCOM.
“In terms of relief, the largest financial institutions are making good progress towards the December 20 deadline, but of course, additional time is always welcome,” Reish said.
“The mid-market is not as far along,” he said, “so the additional time will be very helpful to them. That’s also true for some smaller RIAs and broker-dealers, but I am concerned that some smaller firms don’t realize that the new rules will have a material impact on them. The extended time limit will only matter for them if they recognize what needs to be done and how much work it is. Hopefully, that will be the case.”
The Department of Labor did not immediately respond to a request for information at deadline.
Eight trade associations and the law firm of Davis & Harman sent a letter to the department’s Employee Benefits Security Administration on September 23 asking the agency for more time to prepare for implementation of the fiduciary rule.
In the letter, the groups asked the agency to extend the temporary enforcement policy by at least six to 12 months beyond December 20.