Trying both to stop and comply with a Department of Labor regulation to raise investment-advice standards for retirement accounts has put the financial industry in an awkward situation that was highlighted on Monday in Washington.
Labor Deputy Assistant Secretary Timothy Hauser was scheduled to participate on a morning panel about the rule at an Insured Retirement Institute conference. He abruptly backed out of the appearance late last week, after IRI joined a lawsuit seeking to vacate the rule.
It's unclear whether Mr. Hauser's move was
related to the lawsuit. A DOL spokesman did not immediately respond to a request for comment.
J. Lee Covington II, IRI senior vice president and general counsel, did not know why Mr. Hauser declined to appear at his organization's event, which has devoted a couple of sessions to the rule.
“You'd have to ask him that,” Mr. Covington said in an interview on the sidelines of the conference. “He was on the schedule last week.”
Mr. Hauser's replacement on the panel, Seth Harris, a former deputy labor secretary in the Obama administration, declined to speculate on Mr. Hauser's absence.
He said that it's “not unusual” for a financial industry group such as IRI, which represents annuity providers, to take on a rule in court with which its members are trying to comply.
“You usually don't have this serendipity of a lawsuit being filed on a Wednesday [June 2] and a conference on Monday,” said Mr. Harris, now a lawyer at Dentons.
Given that that first compliance deadline is next April, while at the same time seeking “legal clarity” on the measure, IRI has to manage both efforts, according to Mr. Covington. “It's a natural part of the process, working on parallel tracks,” he said.
(Related read: The DOL Fiduciary rule from all angles)
Since the rule was
first introduced in April, financial advisers have been grappling with how to adjust their operations to satisfy the requirements of the rule, which mandates that advisers act in the best interests of their clients in 401(k) and individual retirement accounts.
The industry lawsuit —
followed by a separate legal action last week by an insurance group — is likely to throw sand into the gears of the compliance process.
As the agency gets questions from financial advisers, such as those attending the IRI conference, it will have to check with the Department of Justice in formulating the answers because the department will have to defend DOL in court, according to Steven Saxon, chairman of the Groom Law Group.
“They're going to have to run their responses through the litigators,” Mr. Saxon said on the sidelines of the IRI conference. “That's going to slow things down.”
Prior to the suit being filed, he said he's received guidance from DOL. “So far, they've been really good to work with,” Mr. Saxon said.
Questions came up during the opening sessions of the IRI conference about how the rule defines “reasonable compensation,” how it deals with differential compensation among investment products and how it will affect annuity sales, among other issues.
Despite the legal wrangling, financial advisers must keep their eye on the compliance ball.
“They should absolutely be moving forward with figuring out how to comply with this highly complicated and extremely detailed regulation,” Mr. Harris said.
