Views on improving the integrity of global capital markets
11 May 2017

DOL Ruling Simplifies Compliance with Fiduciary Rule, But Still Protects Investors

Posted In: Fiduciary Duty

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
  • DOL delays applicability of Fiduciary Rule for 60 days
9 June 2017
  • Fiduciary Rule, Best Interests Contract Exemption, and Principal Transactions Exemption go into effect. Fiduciaries must comply only with the Impartial Conduct Standards
1 January 2018
  • Remaining conditions of Best Interest Contract Exemption (including providing representations of fiduciary compliance, contracts, and warrants about firm’s policies and procedures) and Principal Transactions Exemption apply
  • PTE 84-24 amendments become applicable (except for Impartial Conduct Standards that are effective on 9 June 2017)

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Photo Credit: ©Getty Images/PhotoAlto/Eric Audras

About the Author(s)
Linda Rittenhouse, JD

Linda Rittenhouse, JD, was a director of capital markets policy at CFA Institute. She focused primarily on issues related to investment products and investment regulation. Rittenhouse holds a JD degree.

1 thought on “DOL Ruling Simplifies Compliance with Fiduciary Rule, But Still Protects Investors”

  1. thomas Wilkins, CFA says:

    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?

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