DOL Proposes to Extend Applicability Date of the Fiduciary Rule


Learn more

What just happened?

On Wednesday, August 9 the DOL submitted proposed amendments to the Office of Management and Budget that would extend the transition period for the Fiduciary Rule from January 1, 2018 to July 1, 2019.

In a Notice of Administrative Action (the “Notice”) in the pending Thrivent Financial case challenging the Fiduciary Rule, the DOL stated that it has submitted a proposed rule titled “Extension of Transition Period and Delay of Applicability Dates from January 1, 2018, to July 1, 2019”.  The Notice stated that the DOL has proposed amendments to three prohibited Transaction Exemptions (“PTEs”):

  • The Best Interest Contract Exemption (PTE 2016-01);
  • The Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); and
  • Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24).

It is important to remember that this only impacts the PTEs listed above.  Firms still need to comply with the Fiduciary Rule by meeting the Impartial Conduct Standards. 

The proposed rule will be reviewed by the OMB and published in the Federal Register.  While a comment period typically follows a proposed rule, the DOL has already asked for and received comments about a delay in the Request For Information it issued in June (the “June RFI”), so whatever comment period there is for the proposed delay may be quite brief.   The DOL will then issue a final rule which, following another review by the OMB and publication in the Federal Register, can be made effective on a date chosen by the DOL.

What does this mean?

After the release of the June RFI, most DOL watchers expected that a proposal such as this would be forthcoming.  The proposed delay is entirely consistent with President Trump’s Presidential Memorandum issued in February that required an examination of the Fiduciary Rule followed by a consideration of “possible changes with respect to the Fiduciary Rule and PTEs based on new evidence or analysis developed pursuant to the examination.”

The proposal also makes sense in that, in addition to the delay, the June RFI asked for comments on sixteen other questions about how the various PTEs in the Fiduciary Rule could be improved, scaled back, or eliminated.   It was always unlikely that a review of this magnitude, and the issuance of new rules based on the review of the comments, could take place by January 1, 2018.

This does not mean that the Fiduciary Rule is going away.  Broker-dealers, investment advisers, and other financial services providers are fiduciaries to their Retirement Investor clients.  The Impartial Conduct Standards remain in place.  Given the nature of the questions in the June RFI and recent statements from the DOL and the SEC, it seems likely that, in one form or another, the Fiduciary Rule will be around for some time to come.

What should firms do now?

While it appears probable that the proposed delay will go into effect, if we’ve learned anything in the past year it’s that Washington is unpredictable.  By now, savvy firms have gauged how long it will take them to come into compliance with the existing PTEs by January 1.  Your firm should continue to budget an appropriate amount of time and resources to work towards the January 1 deadline until the delay is officially announced. 

In the meantime, firms should continue to refine and tighten their policies and procedures for meeting the Impartial Conduct Standards.  While the DOL stated on May 22 that it “will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions” through January 1, it also stated that it would reevaluate this position if circumstances changed.   They may be less forgiving to firms that did not use the period before January 1 to develop appropriate policies and procedures.

If your firm has not yet fully developed policies and procedures to meet the requirements of the Impartial Conduct Standards, you should do so now.  Once policies and procedures have been developed, all firms should make sure that those policies are vigorously enforced.

If you have any questions about your firm’s current compliance with the Department of Labor’s Fiduciary Rule, or how further developments may affect your business, please contact us today.

Blog written by Rob Stirling

Learn more