DOL Sends Final Rule to Extend Applicability Date of the Fiduciary Rule to the OMB


What just happened?

On Wednesday, November 1 the DOL submitted final amendments to the Office of Management and Budget that would extend the Transition Period for the Fiduciary Rule. A copy of the final rule is not available at this time; however, the DOL had proposed in August that the Transition Period be extended from January 1, 2018 to July 1, 2019.

As originally proposed, the rule would amend 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 final rule will be reviewed by the OMB and published in the Federal Register. The review process typically takes ten to fourteen days to complete.

What does this mean?

Even before the release of the proposal to extend the Transition Period, the DOL had asked for and received comments about a delay in a Request for Information it issued in June (the “June RFI”). After the release of the June RFI, most DOL watchers expected that a delay would be forthcoming. A 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 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. Given the scope of this request, it was always unlikely that a review of these comments, 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 highly likely 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 final rule is published in the Federal Register.

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.

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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.