Fiduciary Rule Delay is Blow to Efficiency of Alternative Investments

September 8, 2017

How will the delay of DOL Fiduciary Rule impact alternative investors?



On August 28, the Office of Management and Budget (OMB) approved an 18-month delay to the final implementation of the Department of Labor’s (DOL) Fiduciary Rule.

The delay, which pushes back implementation from January 1, 2018 to July 1, 2019, was requested in an August 9 document submitted by the DOL as part of a lawsuit in the U.S. District Court for the District of Minnesota. The length of the delay came as a surprise to many fiduciary advocates and industry watchers. The court document proposing the delay also suggested that the DOL might loosen some of the Fiduciary Rule restrictions on certain transactions, including IRA rollovers and the sale of insurance products.

The OMB took only three weeks to approve the delay, a process that usually requires 90 days to complete. The DOL must now finalize the delay. Before it can do so, the DOL must release a proposed rule in the Federal Register and allow for a comment period of up to 30 days.

The DOL court document seeks to amend three Fiduciary Rule exemptions:

  1. The Best-Interest Contract Exemption:
  2. Class Exemption:
  3. Prohibited Transaction Exemption 84-24:


Impact for Alternative Investors

The Fiduciary Rule, broadly speaking, requires broker/dealers and investment advisors to act in their clients’ best interests when offering advice concerning retirement account investments (i.e., 401(k)’s, IRAs, etc.). The delay, which is generally unpopular among most stakeholders, does not serve the best interests of alternative investors, such as those who purchase shares of non-traded REITs, because it postpones a process that:

1. Would help instill investor confidence: The nagging question on the minds of many retirement investors, including Millennials, is whether they are getting ripped off by their brokers or advisors. They want to know whether sponsors are paying money to direct traffic flow to their products, even if not optimal for the investor. Expensive commissions, variable sales fees and other money flows can bribe brokers and advisors to direct customer investments to products that enrich the advisor at the expense of the investor. Delay in Fiduciary Rule adoption feeds the suspicion that the game is rigged.

2. Would improve efficiency: Alternative assets present challenges to both advisors and investors. In the past, assets like nontraded REITs were often burdened by complex fee structures that confused investors and prolonged and/or threatened the sales process. The new Fiduciary Rule would have permitted qualified investors to know up-front all fees and all potential conflicts of interest. To the extent that the rule delay discourages investments in nontraded REITs (by delaying the BICE contract requirement and the ability to form a class action suit for breach of the contract), it needlessly deprives investors of diversification and cash flow.

We look forward to broker-dealer firms and large asset managers continuing to move towards compliance with this rule, even with the delay, to ensure that trust and efficiency are gained in the alternative asset marketplace.


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