As the U.S. Department of Labor’s request for a new implementation delay is considered, we address some possible questions on the implications for the fiduciary rule.
Q: When will we know if the transition period is extended until July 1, 2019?
The U.S. Department of Labor (DOL) has requested comments on its proposed extension, due September 15. The DOL will review the comments before publishing a final rule, which will likely take place in October.
Capital Group has submitted comment letters supporting the proposed extension and will continue to advocate our position with the Securities and Exchange Commission and the DOL. We will continue our advocacy for changes that support the spirit of the fiduciary rule and allow for effective implementation.
Q: Does the request for delay indicate that the DOL is considering making changes to the fiduciary rule and, if so, what specific changes are being considered?
The DOL has signaled in public documents that it is considering eliminating the portion of the Best Interest Contract (BIC) that enables class action litigation enforcement of the BIC. The DOL also has stated that it is considering an alternative exemption to the BIC built around clean shares (investments with transparent broker fees as opposed to, for example, annual 12b-1 fees).
Other material changes might also be made. For example, our comment letter in response to the Request for Information recommended expanding the grandfather rule. It is, however, too early to say what changes will ultimately be made, if any.
We will continue our engagement with industry leaders to ensure that we identify share class changes and rule compliance requirements needed.
Q: How does the potential delay in the DOL fiduciary rule affect the continued shift to advisory?
Currently, most firms prefer to continue offering A shares – with good reason – because broker-dealers believe this structure has served their clients and firms well.
We expect Class A shares to remain relevant for the near term—and perhaps longer, if the fiduciary rule is substantially reworked. The move to advisory will likely be a long-term industry shift, for which we will continue to prepare in order to be responsive to our partners.