November 27, 2017 Practice Points

Tips for Financial Institutions During the Extended “Transition Period” for the DOL Fiduciary Duty Rule

Firms and advisers should remember that the transition period is still in force.

By Julie Firestone

The Department of Labor (DOL) rule’s application of a fiduciary standard to persons who make recommendations to retirement investors has been in effect since June 9, 2017. Since that time, it has become increasingly unlikely that full implementation of the rule or the best-interest contract exemption (BICE) will ever see the light of day.

On November 2, 2017, the DOL’s proposal to delay full implementation of the rule and the BICE was posted by the Office of Management and Budget (OMB). The delay rule, which must be approved by the OMB, would delay full implementation of the DOL Fiduciary Duty Rule and the BICE yet again, from January 1, 2018, until July 1, 2019. Insiders expect the OMB to approve the delay rule quickly, perhaps in only a week or two. Assuming the OMB approves the delay rule, the DOL will be authorized to publish the final delay rule in the Federal Register and the newest delay will take effect. [Note: After this posting, the OMB did approve the delay rule, which was then published in the Federal Register on November 29.]

If full implementation of the DOL Fiduciary Duty Rule and the BICE is delayed to July 1, 2019, that means that the transition versions of the rule and the BICE will apply until June 30, 2019 (if not indefinitely). Under the transition versions,

  • Firms and advisers are fiduciaries to the extent they give investment advice to retirement investors; and
  • They are subject to the Impartial Conduct Standards, which require firms and advisers to:
    • Provide advice that is in the retirement investors’ best interest (i.e., recommendations that are prudent and loyal);
    • Charge no more than reasonable compensation; and
    • Make no misleading statements about investment transactions, compensation, and conflicts of interest.

The DOL has previously cautioned, in its conflict-of-interest FAQs issued in May 2017, that it “expects financial institutions to adopt such policies and procedures as they reasonably conclude are necessary to ensure that advisers comply with the Impartial Conduct Standards.”

So, while firms and advisers may breathe a sigh of relief that the full DOL Fiduciary Duty Rule and BICE (with their onerous written disclosure and investor communication obligations) look to be pushed back yet again, firms and advisers should remember that the transition period of the rule and the BICE is still in force.

Accordingly, firms especially should have the following in effect:

  • Written policies and procedures acknowledging their status as fiduciaries to the extent they give investment advice to retirement investors
  • Written policies and procedures implementing the best-interest standard and impartial conduct standards

Firms and advisers are also encouraged to ensure that their errors-and-omissions policies cover breach of fiduciary duty claims and alleged violations of the DOL rule.

For a fuller discussion of the DOL Fiduciary Duty Rule and BICE, see Briggs and Morgan’s blog at financialmarketslaw.com.

Julie Firestone is a senior counsel with Norton Rose Fulbright in Minneapolis, Minnesota.


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