DOL Ruling Simplifies Compliance with Fiduciary Rule, But Still Protects Investors
The DOL’s ruling to delay the applicability of its Fiduciary Duty Rule (Fiduciary Rule) until 9 June 2017 does more than simply extend the date. It actually changes the framework of the standards that advice providers must comply with while the DOL conducts its review of the Fiduciary Rule as mandated by the Trump administration in its 3 February 2017 memorandum.
In reviewing the comments received about delaying the Fiduciary Rule, and after conducting a cost-benefit analysis, the DOL reasoned that a shorter delay period combined with the requirement that certain standards take effect at the end of the 60-day period provided the best benefits to investors and the least cost to advice providers.
What Applies and When
In the rule that the DOL published on 7 April, it defines what will be applicable between 9 June 2017 (new applicable date for the Fiduciary Rule) and 1 January 2018 (original date for full integration of all conditions of the Fiduciary Rule)
Specifically, the Rule postpones the effective date to 9 June 2017 of the following:
- The Fiduciary Rule that defines who is a fiduciary
- Two Prohibited Transaction Exemptions (PTEs) — the Best Interest Contract Exemption (BICE) and the Class Exemption for Principal Transactions.
And the Rule stipulates that those who rely on the two PTEs to offer advice as fiduciaries must comply with only the Impartial Conduct Standards starting 9 June 2017 until 1 January 2018 (when additional conditions will apply)
Thus, instead of having to jump through the numerous hoops associated especially with complying with the BICE, advice providers can continue offering investment advice as long as they simply meet the Impartial Conduct Standards (ICS). Until 1 January 2018, advice providers will not have to make the specific written disclosures and representations of fiduciary compliance (nor enter into a best interest contract with clients).
The Impartial Conduct Standards require three things of advisers and financial institutions:
- Provide investment advice that is in the investors’ best interests.
- Receive no more than reasonable compensation.
- Avoid misleading statements to investors about recommended transactions.
Rationale for Ruling
The DOL appears to have decided on this approach for several reasons. First, it believes that the ICS are much less controversial than the BICE conditions. Moreover, many firms have already brought themselves into compliance with the ICS in anticipation of the original April 2017 applicability date of the Fiduciary Rule. Thus, this requirement will raise the standard by effectively requiring the basics of a fiduciary standard.
Second, the most strenuous objections to the Fiduciary Rule have focused on the potential for class action litigation, the duty for making written representations and commitments about fiduciary compliance, the need to provide warranties relating to policies and procedures, and the execution of a best interest contract. The DOL’s approach assuages these concerns by putting them on hold until the DOL completes its review.
These new standards provide some certainty to the industry about its obligations while providing protection to retirement investors through a best interest standard. Everyone can move ahead without fear that additional compliance burdens or changes to the rule will occur soon. The DOL intends to complete its review by 1 January 2018, at which time the full details of the additional requirements will come into effect. Alternatively, the DOL could decide to extend the rule’s date, substantially revise it, or streamline the PTE conditions, among other things.
Dates for Compliance
|10 April 2017||
|9 June 2017||
|1 January 2018||
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1 thought on “DOL Ruling Simplifies Compliance with Fiduciary Rule, But Still Protects Investors”
I am an independent state-registered investment advisor. Is there a form that I have to fill out either for my retirement clients or for the DOL?