Parts of Fiduciary Rule Delayed

September 13, 2017

On Aug. 9, the Department of Labor (DOL) submitted a proposal to the Office of Management and Budget (OMB) to delay the Jan. 1, 2018, applicability date of several provisions of the Fiduciary Rule to July 1, 2019. This proposal signals that the DOL is considering major changes to the rule and the prohibited transaction exemptions proposed with it.

DOL officials proposed the delay to OMB for three exemptions — a best-interest contract; a class exemption for principal transactions in certain assets between fiduciaries and employee benefit plans; and certain transactions with insurance agents, brokers and consultants. OMB approval often can take several months, however, on Aug. 28, the OMB approved DOL’s proposal to extend the Jan. 1 applicability date for the remaining portions of the fiduciary rule until July 1, 2019.

The DOL Fiduciary Rule is a regulation that expands the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA). It essentially elevates all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary. For investment advisers, the rule imposes significant burdens on advisers that receive other than asset based fees (level-fee fiduciary). These advisers will have to comply with the Best Interest Contract Exemption (BICE), which will require significant revisions to procedures, contracts, and websites.

Two provisions of the DOL Fiduciary rule were made effective on June 9, 2017. The first provision expands the definition of a fiduciary by including financial advisers to client retirement accounts (this does not really change the law as to investment advisors). The second provision establishes impartial conduct standards, including:

  • Any recommendation must be in the best interest of the investor, meaning that it must be based on the investor’s investment objectives, risk tolerance, and financial circumstances (and not financial considerations of the fiduciary);
  • A fiduciary must not make misleading statements about investment transactions, compensation, or conflicts of interest; and
  • A fiduciary may not charge more than a reasonable amount for services.

However, until the full rule is effective, investment advisers can still receive commissions, trailing, revenue sharing and other transaction based fees without complying with the BICE procedures.

Click here for background and NSBA commentary on the fiduciary rule.