RIA Compliance Blog
The Department of Labor (DOL) last week published a final rule extending the transition period of the Fiduciary Rule and delaying the second phase of implementation from January 1, 2018 to July 1, 2019. The DOL stated that the primary reason for delaying the rule was to give the DOL necessary time to review the substantial commentary it has received under the criteria set forth in the Presidential Memorandum issued in February of this year, as well as to consider possible changes or alternatives to the Fiduciary Rule exemptions and to seek input from the SEC and other securities regulators.
The Fiduciary Rule was enacted in April 2016, with its applicability date originally set for April 10, 2017. It also provided for a transition period through January 1, 2018 for compliance with certain new and amended Prohibited Transaction Exemptions (PTEs), including the new Best Interest Contract (BIC) exemption. The full requirements of the BIC exemption, including the written contract requirement for transactions involving IRA owners, are not required until the end of the transition period.
However, in April of 2017 the DOL delayed the applicability date from April 10, 2017 to June 9, 2017 in response to President Trump’s Presidential Memorandum directing the DOL to prepare an updated analysis of the impact of the DOL Fiduciary rule on the ability of retirement investors to gain access to retirement information and financial advice. At the same time, the DOL revised the transition period requirements to require investment advice fiduciaries seeking to rely on the BIC exemption to adhere only to the Impartial Conduct Standards as conditions of this exemption during the transition period.
The transition period was formerly set to run from June 9, 2017 to January 1, 2018. With the DOL’s newly adopted rule, however, the second phase of implementation will now run from June 9, 2017 to July 1, 2019. Accordingly, investment advice fiduciaries seeking to rely on the new BIC exemption will not have to comply with the full provisions of the BIC exemption until the implementation of the second phase of the Fiduciary Rule in July of 2019, unless those provisions are superseded or amended as a result of the extended review period. Until that time, all that is required during the transition period is compliance with the Impartial Conduct Standards, which include providing investment advice in the best interest of the retirement investor, receiving only reasonable compensation, and not making any materially misleading statements.
The DOL has previously noted that it expects that advisers and financial institutions will adopt prudent supervisory mechanisms to prevent violations of the Impartial Conduct Standards during the transition period. However, the DOL also extended the temporary enforcement relief from its May of 2018 Field Assistance Bulletin stating that it would not pursue claims against fiduciaries who are working diligently and in good faith to comply with the Fiduciary Rule and related exemptions during the transition period.
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