As we previously reported (see our Client Alert dated February 7, 2017), the DOL was directed by President Trump to review new ERISA fiduciary regulations issued in the final year of the Obama Administration that would significantly expand who is considered a fiduciary under ERISA (known as the "Fiduciary Rule"). While the Fiduciary Rule was scheduled to become effective April 10, in the days leading up to the original effective date, the DOL initiated a review, issued a policy temporarily suspending enforcement of the Fiduciary Rule, and sought comment on a proposed 60day extension of the Fiduciary Rule's effective date.
On April 7, based on a review and evaluation of the public comments received regarding a delay, the DOL issued a final regulation officially delaying the effective date of the Fiduciary Rule until June 9. Even though the DOL had previously issued a policy suspending enforcement, it expressed concern that "rigid adherence to the April 10 applicability date could result in an unduly chaotic transition to the new standards as firms rush to prepare required disclosure documents and finalize compliance structures that are not yet ready, resulting in investor confusion, excessive costs and needlessly restricted or reduced advisory services."
Concluding that a more balanced approach to the delay would be preferable to best protect the interest of retirement investors, the DOL set June 9 as the new effective date of the Fiduciary Rule. The "best interest contract" and "principal transactions" exemptions (as discussed in our Client Alert dated May 16, 2016) will also be available to advisors effective June 9. However, to comply with these exemptions through December 31, advisors need only adhere to the "impartial conduct standards" of the exemptions. The impartial conduct standards require advisors to
- make recommendations that are in a customer's best interest
- adhere to duties of prudence and loyalty
- receive no more than reasonable compensation, and
- not make materially misleading statements.
Other conditions for these exemptions, such as requirements to make specific disclosures and representations of fiduciary compliance in written communications with investors, are not required until January 1, 2018, by which time the DOL intends to complete the examination and analysis of the Fiduciary Rule as directed by President Trump.
While there is still uncertainty over whether there will be further changes to the Fiduciary Rule as the DOL continues its review, advisors should review their practices and procedures in preparation for a June 9 effective date of the Fiduciary Rule. Further, any advisor who desires to rely on the best interest contract and principal transactions exemptions should be prepared to comply, beginning June 9, with the impartial conduct standards outlined above. In light of the relatively short period of time until full effectiveness on January 1, 2018, advisors should also consider preparing for compliance with the written disclosures and representations aspects of the exemptions – even though those requirements continue to be under review by the DOL.
Given the uncertainty raised by the DOL's ongoing review of the Fiduciary Rule, advisors should keep a close watch on developments concerning the Fiduciary Rule. It may be noteworthy that R. Alexander Acosta, President Trump's nominee for secretary of the DOL, was confirmed by the Senate after the DOL's final regulations were issued, and Secretary Acosta will likely have his turn holding the Fiduciary Rule hot potato.
We will continue to keep a close watch on developments and issue further alerts on this subject as circumstances warrant.