DOL Action on Fiduciary Rule Makes Important Changes

The Department of Labor (DOL) recently released a final rule delaying by 60 days the implementation date of the DOL Fiduciary Rule from April 10th to June 9th. This is in response to President Trump’s February memorandum asking the DOL to review the impact of the DOL Fiduciary Rule and assess whether it negatively effects the ability of retirement investors to gain access to retirement information and financial advice. The DOL Fiduciary Rule seeks to assign fiduciary duties to all advisers to retirement investors by expanding the definition of fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code) to cover a wider array of advice relationships.

Under the DOL’s final delay rule, the revised definition of fiduciary investment advice and certain provisions of the Best Interest Contract (BIC) exemption will be implemented on June 9th. At that time, advisers acting as fiduciaries and engaging in transactions covered by the exemption must comply with the impartial conduct standards of the BIC exemption. The impartial conduct standards include providing investment advice in the best interest of the retirement investor, receiving only reasonable compensation, and not making any materially misleading statements.

Notably, the “Transition Period” requirements under the full BIC exemption are no longer required. Previously, advisers intending to rely on the full BIC exemption had to meet certain requirements during the “Transition Period” from April 10, 2017 to January 1, 2018. Specifically, in addition to complying with the impartial conduct standards they also had to provide a written statement acknowledging fiduciary status and certain written disclosures to retirement investors. The final rule no longer requires these requirements, instead requiring only compliance with the impartial conduct standards as conditions of the exemption during the transition period from June 9th to January 1, 2018.

The delay does not affect the other conditions of the BIC exemption, which continue to be scheduled for implementation on January 1, 2018. In regards to advisers proceeding under the full BIC exemption, this includes the best interest contract containing certain warranties about the firm’s policies and procedures and the written disclosure requirements. For level fee fiduciaries proceeding under the streamlined provisions, this includes providing a written statement acknowledging fiduciary status and keeping documentation of how the adviser determined a rollover recommendation was in the best interest of the client.

The DOL’s final delay rule also extended for 60 days the applicability dates of the new Class Exemption for Principal Transactions, amendments to Prohibited Transaction Exemption 84-24 (relating to sale of annuities), and amendments to certain other previously granted exemptions. Fiduciaries relying on these exemptions must comply with the impartial conduct standards during the period from June 9th to January 1, 2018.

The DOL re-emphasized in its final delay rule adopting release that its focus during the period before January 1, 2018 and for some time after will be on compliance assistance. The DOL also retained the ability to further delay the January 1, 2018 applicability date if it determines it must make further changes to the DOL Fiduciary Rule and related exemptions or that it needs more time to complete its review. The DOL has asked for comments to assist it in its evaluation of the rule and has so far received approximately 193,000 comment and petition letters. Further delays are expected as the DOL continues to conduct its review.

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