Controversy over the decision by U.S. Labor Secretary Alexander Acosta to go live with the Fiduciary Rule continues.
The Labor Secretary was quoted as having given testimony to the effect that the process by which the rule was adopted was materially flawed and indicating that he intended to reconsider the rule, after it has gone into effect.
In a recent editorial published by The Hill, former SEC Commissioner Paul Atkins urged Secretary Acosta to again consider delaying implementation of the Fiduciary Rule, which is scheduled to become applicable on June 9, 2017. Secretary Acosta had announced on May 22, 2017 that the DOL would not delay the rule’s effective date any further. Mr. Atkins argued that in its current form, the rule threatens to result in meaningfully adverse economic consequences.
Mr. Atkins urged Secretary Acosta to delay the implementation date, cooperate with the SEC in developing fiduciary standards, and conduct a thorough study of the rule’s potential impact that would take more recent data into account. He suggested that the SEC’s June 1, 2017 request for comments on developing standards of conduct affords the DOL a channel through which to legally delay the effective date.
Mr. Atkins criticized the procedural history and development of the rule. He asserted that Secretary Acosta should pay particular attention to the DOL’s lack of cooperation with the SEC, and cited a 2016 U.S. Senate report that he believes indicates that appointees during the Obama administration “actively undermined SEC participation in the rule’s design.” Mr. Atkins also challenged the DOL’s claim that the rule will save investors $17 billion, and referred to an article in which former SEC economist Craig Lewis accused the DOL of “significantly overestimat[ing]” those potential savings.
Lofchie Comment: As Mr. Atkins points out, there are many good reasons for the DOL to delay the implementation of the fiduciary rule, including the current legal challenge before the U.S Court of Appeals for the Fifth Circuit, and the debatable assertion of “$17 billion” in savings made in a 2015 Council of Economic Advisers’ Report supporting the adoption of the rule. Further, the existence of two regulators, the DOL and the SEC, that each have independent suitability rules applicable to the same set of relationships and transactions, is simply bad government from a structural standpoint.
Given that, and given the criticism of the rule voiced by Secretary Acosta himself, it is somewhat unclear why the Secretary is not choosing to delay the Rule’s effective date. The Secretary appears to be underestimating the disruption that may be caused by allowing a rule to go effective and then subsequently rescinding it or modifying it, as opposed to getting it right the first time.