Questions Point to ‘Diluted’ 401k Fiduciary Rule

Caveat centers on interpretation of 'arbitrary and capricious'

401k, fiduciary , Department of LaborA legal storm's a brewin'

In the least-newsiest news of the week, The Wall Street Journal predicts a watered-down version of the original fiduciary rule when all is said and done.

And if recent comments prove true, it means lawsuits and similar litigation stand ready.

Fiduciary bigwig Blaine Aikin of Fi360 said as much at the company’s annual conference in Nashville in May, just after labor secretary Alexander Acosta confirmed the rule’s June implementation date.

At the time, Aikin cautioned against anyone trying to dilute the rule too much.

“If they do, they’ll get sued,” he said. “It’s been 6 1/2 years, and the rule has a solid foundation, so it will be hard to change its intention at this point. They cannot do anything that would be arbitrary and capricious, which means they’ll have to act carefully.”

The caveat, of course, is the definition of “too much,” or more specifically “arbitrary and capricious,” a razor’s edge the DOL seems bent on navigating.

“The Trump administration in recent days has raised questions about the impact of the fiduciary rule’s compliance costs and legal liabilities, a sign that the rule meant to protect retirement savers from conflicted advice may survive a review without some of its primary enforcement provisions,” according to the Journal.

The paper notes that in a legal brief this past week, the DOL urged the U.S. District Court for the Northern District of Texas “to uphold its February ruling against business groups seeking to quash the fiduciary rule, but the agency said it doesn’t stand by a condition in the Obama-era rule that allows investors to bring class-action suits against brokers who they say failed to act as fiduciaries.”

The Department of Labor’s Request for Information regarding the fiduciary rule, and specifically the Best Interest Contract Exemption under Prohibited Transactions, was entered in the Federal Register on July 6. It marked the start of the public comment period set to run through July 21, 2017, and language it included specifically examined costs to advisors and the industry as a whole.

Many industry watchers see the RFI as (another) move to delay and/or possibly replace the controversial regulation before it’s January date for full implementation.

The department diplomatically described the fiduciary RFI as an opportunity for the public “to provide data and information that may be used to revise the rule and associated exemptions.”

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