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ADISA Notes Delay of Department of Labor Fiduciary Rule Provisions

Nov 29, 2017

The U.S. Department of Labor released a final rule yesterday that extends the existing transition period for compliance with certain exemptions, including the Best Interest Contract Exemption (or BICE), until July 1, 2019. These exemptions were adopted in conjunction with the Department’s revisions to its regulations that significantly extended the application of ERISA’s fiduciary provisions to firms that serve retirement account clients. The Department also delayed the full scale implementation of enforcement efforts until that same date. See https://federalregister.gov/d/2017-25760 for the final rule, which was published in the Federal Register on November 29, 2017. 

Pursuant to the rule, the Department finalized its proposed 18 month extension of the transition period for the BICE, as well as several other exemptions, to July 1, 2019. The rulemaking leaves in place the revised definitions of “fiduciary” and “investment advice,” which became operable on June 9, 2017 and apply to ERISA plans, IRAs and similar accounts. At the same time, the rule postpones the requirement that brokers, etc., enter into binding contracts with their retirement-account clients. The rule also extends the Department’s previously-articulated enforcement position, wherein the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with their duties.

The Department’s rationale is that it needs more time to conduct a reassessment of the 2017 rule changes and accompanying exemptions on advice to retirement accounts: "The Department is granting the delay because of its concern that, without delay in the applicability dates, consumers may face significant confusion, and regulated parties may incur undue expense to comply with the conditions or requirements that the department ultimately determines to revise or repeal." The Department also pointed to its desire to use the 18 month extension period to coordinate with the SEC and other regulators, including FINRA and the National Association of Insurance Commissions, and noted that it plans to propose a new, streamlined class exemption.

The delay, while welcomed by most ADISA members, has led to some confusion as to the best course of action regarding advice to retirement investors by broker-dealers and others not previously treated as fiduciaries. The Department has emphasized that "the basic norms and standards of fair dealing" still apply during the transition period, and further stated that it will focus on "affirmative steps" taken by firms to comply with the Impartial Conduct Standards. When asked what this effectively means for those broker-dealers, ADISA President John Grady, DLA Piper, noted, “At bottom, during the transition period, firms can rely on the BICE and the other exemptions so long as they satisfy the so-called Impartial Conduct Standards. Firms that are operating in compliance with these standards do not need to take additional action; however, the Department believes that firms should be making good faith efforts to adhere to the standards across their retirement client account base.”

There will be additional call for commentary and research by the Department in the near future. Said ADISA’s Legislative & Regulatory Committee Chair Catherine Bowman of The Bowman Law Firm, “ADISA has been instrumental in providing quantitative research and commentary to the Department as it tries to find its way on this issue. We will continue during this interim period to mobilize our contacts, support our trade association coalition involved in this effort, and to provide the best practical information we can to both our membership and the Department. The Department has stated that its staff is available to discuss approaches to compliance, etc., and we expect to meet and talk with Department staff on issues and ideas that might have broad applicability to our members.”