The Fiduciary Rule: How Long Will Compliance Take?
The drafting, redrafting, comment, revision, lather rinse repeat of the Department of Labor’s (DOL) fiduciary rule certainly has been a protracted process. As we appear to be on the brink of its for-real introduction, it’s interesting to consider matters that follow in the wake of the big reveal — such as how much time it may take to comply with the rule.
Compliance is not a choice. And for good measure, to make sure that rolling back the rule would not be easily accomplished, the Obama administration “worked backwards” from Inauguration Day 2017 in figuring when to set it in place. Which lends added credence to the importance of complying with the rule.
The DOL expects it will take eight months, according to ThinkAdvisor, but the experts they interviewed
recently beg to differ.
For its part, the American Retirement Association in its comment letter
to the DOL said of that amount of time, “Eight months is simply not enough time to accomplish all the due diligence that will be necessary. The proposed eight month transition period will result in a costlier than necessary disruption to existing business arrangements.”
“Unworkable” was the response of Financial Services Institute Vice President of Regulatory Affairs and Associate General Counsel Robin Traxler to the DOL’s expectation. FSI members back up his assessment, according to what he told ThinkAdvisor in a recent webcast: they say compliance time will be on the order of three years.
Traxler backs that estimate, noting that firms will need to make technological changes in order to comply, and that those themselves will require budgetary adjustments as well.
Why? “There could be hundreds of thousands or millions of accounts to be converted in that timeline. There’s isn’t enough time in a day,” said American Portfolios Financial Services, Inc. Vice President of Sales and New Development Keith Kelly, painting a stark picture.
The American Retirement Association in its comment letter to the DOL had recommended that “the transition period and applicability date be extended to a date that is at least two years after the date of publication of the final rule.” The ARA said that it believes that the two additional years “will be critical to transition business models in an efficient and cost effective way so that service providers are incentivized to fit within the new landscape that the Department will have established.”
Those who must comply may want more time than the DOL says it thinks they will, but tempus feugit — and Fred Reish, a partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group, said as much to ThinkAdvisor. He told them that in order to be in compliance, firms will need to do most of the work and capital expenditure over the next 12 months.
If not sooner. Reish said that “pretty much by Jan. 1” those who must comply will need to put in place services, products and systems that he argues will need to be pure-level fee for those who won’t need the best interest contract exemption. And those using that exemption, Reish told ThinkAdvisor, will have to put programming and in place and train their personnel.