DOL fiduciary rule

Recent DOL Action: Proposed Delay of Fiduciary Rule and New Transition Period Guidance

August 18, 2017 | Patricia Klusmeyer

The Department of Labor (DOL) recently indicated in a court filing that it has submitted a proposed rule to the Office of Management and Budget (OMB) to extend the transition period of the Fiduciary Rule and delay the second phase of implementation from January 1, 2018 to July 1, 2019. This proposal is currently under review by the OMB.

The DOL also recently released a new set of FAQ guidance regarding compliance with the Fiduciary Rule during the transition period when providing advice to IRAs, plans covered by the Employee Retirement Income Security Act of 1974 (ERISA), and other plans covered by section 4975 of the Internal Revenue Code (Code). Most of the questions dealt specifically with the prohibited transaction exemption under ERISA section 408(b)(2) for service providers to ERISA plans. Continue reading ›

DOL Action on Fiduciary Rule Makes Important Changes

April 28, 2017 | Patricia Klusmeyer

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. Continue reading ›

DOL Issues Additional Guidance as Enforcement Date of Fiduciary Rule Approaches

January 26, 2017 | Patricia Klusmeyer

The Department of Labor (DOL) recently issued two new sets of FAQ guidance regarding the revised definition of fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (Code), as well as the new prohibited transaction exemptions (PTEs). The first set of guidance is directed to retirement investors, not advisers, and answers basic questions investors may have regarding the new rule and how it will work. The second set of guidance is aimed at financial service providers and focuses mainly on the revised definition of fiduciary investment advice and the situations in which fiduciary duties will or will not attach under the new rule.

While the first set of FAQ guidance is not necessarily aimed at financial service providers, it did provide a few useful insights that I will briefly discuss here. The DOL stated that the new rule does not require advisers to indiscriminately move clients from commission-based accounts to fee-based accounts, and instead requires advisers to act in the client’s best interest when deciding what type of account to recommend. Regarding the best interest requirement, the DOL clarified that providing investment advice in a client’s best interest does not mean that advisers have a duty to find the best possible investment product for clients out of all the investments available in the marketplace. Continue reading ›

Federal Court Denies Motion to Block DOL Fiduciary Rule

November 28, 2016 | Patricia Klusmeyer

The U.S. Circuit Court of Appeals for the District of Columbia recently denied a motion brought by the National Association for Fixed Annuities (NAFA) to enjoin the implementation of the new Department of Labor (DOL) fiduciary rule. This is the first court decision on a legal challenge to the rule. There are currently several other lawsuits against the DOL seeking to overrule the new DOL fiduciary rule that await decision.

NAFA is an insurance trade association that represents insurance companies, independent marketing organizations, and individual insurance agents. NAFA has been very vocal in its opposition to the new DOL fiduciary rule, stating that the new rule will have “catastrophic consequences for the fixed indexed annuities industry” and that meeting the April 2017 deadline is “almost an impossibility for the industry.” Along with other opponents to the rule, NAFA believes the rule will lead to higher compliance costs and will greatly increase litigation risk.

DOL Issues First Set of Rolling FAQ Guidance Regarding New Fiduciary Rule

November 9, 2016 | Patricia Klusmeyer

The Department of Labor (DOL) recently released its first set of rolling FAQ guidance regarding its new rules expanding the definition of fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (Code), adopting new prohibited transaction exemptions (PTEs), and amending certain previously existing PTEs. The DOL answered questions regarding the new PTEs and the amendments to existing PTEs under ERISA and the Code. The DOL also reaffirmed the applicability date of April 10, 2017, stating that this date provided adequate time for financial service providers to adjust to the rule changes.

One common area of confusion regarding the new rules was the extent to which the new Best Interest Contract (BIC) exemption would be available for use by discretionary investment managers. One of the conditions to use of the BIC exemption is that the fiduciary not have any discretionary authority or control with respect to the recommended transaction. This excludes a large portion of investment advisers that serve as discretionary investment managers. However, there are limited circumstances in which they can receive protection under the BIC exemption.

DOL Releases Final Fiduciary Rule

April 20, 2016 | Patricia Klusmeyer

The Department of Labor (“DOL”) released the final version of its new fiduciary rule on Wednesday April 6, ending months of widespread speculation and apprehension in the financial services industry. The DOL appears to have heard the thousands of public comments asking for more clarification and simplification, particularly as related to the Best Interests Contract (“BIC”) exemption. The final rule contains some notable deviations from the proposed rule.

As we discussed in an earlier blog post, the former definition of fiduciary for providing investment advice to a covered employee benefit plan under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 (“Code”) stated that financial advisers were generally only fiduciaries if such investment advice was given on a regular basis and pursuant to a mutual understanding that the advice would serve as the primary basis for investment decisions and would be individualized to the particular needs of the plan. This definition typically encompassed only financial advisers in established and ongoing relationships with their clients, such as investment advisers who provided investment advice to covered plans. Meanwhile, broker-dealers and insurance agents were generally excluded, and broker-dealers were only held to the same suitability standard for retirement plans that applies to their recommendations made to non-retirement plans.

Final DOL Fiduciary Rule Predicted to Significantly Alter Sale of Annuity Products

March 8, 2016 | Patricia Klusmeyer

As the Department of Labor’s (“DOL’s”) proposed fiduciary rule awaits final adoption, market participants are starting to predict how it will affect retirement investment advice given that financial advisers such as broker-dealers, investment advisers, insurance companies, and other financial institutions, as well as their representatives, may soon be subjected to heightened fiduciary standards. Specifically, the sale of annuity products is predicted to face a large amount of change given its commission-based nature.

Currently, under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 (“Code”), financial advisers are generally only fiduciaries if they provide investment advice or recommendations for compensation to employee benefit plans or participants and such advice is given on a regular basis and pursuant to a mutual understanding that the advice will serve as the primary basis for investment decisions and will be individualized to the particular needs of the plan. While investment advisers already have fiduciary duties under the Investment Advisers Act of 1940, the current narrow definition of fiduciary under ERISA and the Code generally does not encompass broker-dealers.